The Hardship Letter in Loan Modifications

When a financial institution is considering an application for modification of a mortgage loan, it must first consider whether the justification offered by the debtor in the application has merit.  This letter is known as the “hardship letter.”  Many tend to underestimate the importance of this correspondence, which is a mistake.  One must consider that this letter has a direct purpose.  First, it explains the difficulties that caused the arrears, and secondly it must also include current verified income revealing current capacity to repay.

Many are under the impression that the more tragic the explanation offered the bank, the more likely one will get your approval. This theory is based on the erroneous premise that banks have a heart when, in reality, they only have vaults they wish to maintain full of money.  If one does not offer a reasonable explanation for the arrears and concrete evidence that there is some capacity of repayment, the application will be ignored.  Essentially, the bank wants to know two things.  First, that the arrears were due to circumstances beyond control and that if offered more favorable terms, the homeowner will fully comply in the future.        The bank needs to ensure that the mortgage debtor has taken all necessary measures to save the home.  Upon submitting the application with the statement of income and expenses, one must be sure to avoid including unnecessary expenses such as luxury items.  For example, I have seen loan modification applications that include payment of considerable sums to cable TV providers and beauty parlor.  This does not show a consumer willing to take all measures necessary to save his home.  The banks would probably estimate that it is highly unlikely that this individual will comply with his modified obligation.

It is, therefore, important that one seek out the advise of a professional knowledgeable in bank regulations and familiar with the legislation that governs these financial institutions.  It is also important to avoid being victimized by unfounded promises made by loan modification companies.  For example, an entity that promises to achieve a loan modification in thirty minutes is misleading.  Also, an entity that claims to be accredited free of fraud by any institution is being disrespectful to the reader.

Last but not least, individuals that are not licensed to practice law in the State of Florida could not intervene, nor could they provide counseling in the event of foreclosure.  Unfortunately, there have been hundreds of victims of this type of fraudulent advertisement.  There are many honest and competent professionals in Central Florida that could provide competent and efficient counseling.  The selection one makes could be the difference between losing or rescuing a home. 

Luis A. González
Attorney and Mediator
L. A. González Law Offices, P.A

(407) 649 - 8389