Critical Elements of the “Hardship Package”

First of all, you’re probably wondering what the heck a “Hardship Package” is. I did the first time I heard the term! The hardship package is the term for the group of documents you’ll gather to ask your lender for assistance through a loan modification or short sale. I wanted to outline the package here so you know what each element is and I’ve also included tips for completing the package correctly. Even though your Realtor® will put the package together (if you’re doing a short sale), they may ask you for these elements and you should be ready to produce them quickly. Hardship package requirements vary by lender, but here’s what you can generally expect to provide (items shown with * indicate documents specific to a short sale request):

1. Most recent (consecutive) two years tax returns – Federal return only, include all pages and schedules for all borrowers on the loan(s).
2. Most recent (consecutive) two months bank statements – provide all pages for ALL accounts that you and/or the co-borrower own.
3. Most recent (consecutive) two months pay stubs – for all borrowers on the loan(s).
4. Hardship Letter – this is a letter written by the borrower(s) on the loan in which they ask for the lender to consider a loan modification or short sale (whatever the case may be) and explains to the lender what has happened or what the hardship is that does not allow them to be able to maintain the current financial responsibility for the mortgage(s). It should be short and sweet, as concise as possible – you don’t need to share intimate details of your life.
5. Personal/Household Financial Statement – this is sort of like your budget, most lenders have a standardized format (which you can get for free once you sign up for my newsletter). The financial statement will outline all your income, assets, and expenses to show whether or not you have a surplus of funds each month or you’re in the red every month and are unable to pay.
6. *Purchase Contract – this is the offer from a potential buyer to purchase the property. Each state’s set of documents are different, but some states include a Short Sale Addendum form for buyers that has specific disclosures to the buyer regarding the short sale process: i.e. the acceptance is not bound until the lender(s) issue written approval and also defines the escrow period as beginning the day after the lender’s approval letter is delivered to the buyer’s agent.
7. *Listing Agreement – this is the agreement that the sellers sign to authorize the Realtor® to list and advertise the house for sale. Each state’s set of documents are different, but some states include a Short Sale Addendum form for sellers which contains special disclosures to the seller regarding the short sale process: i.e. there are credit and legal consequences, speak to the appropriate professionals before signing the listing agreement.
8. *Estimated HUD Statement – your Realtor® will obtain this from the title company who will be handling the escrow once the lender approves the sale. It is an estimated net sheet which accounts for all the costs involved in the sale and shows the lender what their potential loss will be. It’s important that this HUD be accurate and include all the payoffs for liens so nothing comes up later in the sale and delays the process. Approval letters from the lender are usually only good for 30 days, so the sale needs to go quickly once approved.
9. Comparative Market Analysis or Broker Price Opinion (a.k.a. BPO) – this isn’t required by lenders, but is usually helpful to show the lender what the property is worth and how the listing price was established. It should support the purchase price negotiated on the Purchase Contract.

Hope this information helps you with your quest! If not, please be sure to drop me a line on my Contact Page with your questions and I’ll be sure to get back to you. Also, I’m totally into networking and sharing – if you have tips to share based on your experience with your lender(s), be sure to leave it here on my Comments section.