A hardship affidavit can help distressed homeowners keep their homes or otherwise avoid a looming foreclosure. It's one of the most critical documents used to determine your eligibility for mortgage assistance. Lenders typically need a documented hardship to verify that you're having financial troubles and can't keep up with your mortgage. Hardship affidavits, sometimes known as hardship letters, should be completed with precision, as lenders may request supporting documents to verify your hardship.
Reasons for the Affidavit
Whether you want to stay in your home or walk away from it, your lender will likely require you to state your motives and reasons for doing so. An affidavit can help you obtain a variety of foreclosure-prevention options, such as loan modification and forbearance, which changes one or more of your mortgage terms so you can keep your home. Deeds in lieu of foreclosure and short sales, in which you sell the home for less than you owe, both require you to give up your home in exchange for mortgage forgiveness. The foreclosure-prevention option that's best for you depends on your individual situation, as tax, legal and financial consequences vary.
Lenders may require you to fill out a specific hardship affidavit when applying for a loan modification, short sale or deed-in-lieu. Boilerplate affidavits may list various acceptable hardships you can choose from. For example, the federal government's Making Home Affordable program requires participating lenders to obtain a completed hardship affidavit from mortgage-assistance applicants. The program's two-page form requires you to provide loan, borrower and co-borrower identification information. You must also designate whether you want to keep or sell your home; whether it's used as a primary, secondary or investment home; and the home's occupancy status. You must choose from a list of reasons for your hardship and sign the affidavit.
Whether you've already stopped making payments or default is imminent, you must describe your financial circumstances to the lender. Examples of acceptable hardships include: job loss, reduction in income, changes in your household income, an increased mortgage payment, an unavoidable increase in expenses, excessive monthly debt, low cash reserves or another viable reason for your financial troubles. You should be specific when explaining your hardship on an affidavit. For example, provide dates of divorce, job loss, serious illness, injury or death if applicable.
When Hardship Letters Are Needed
In addition to or lieu of a boilerplate affidavit form, your lender may require a hardship letter. Like an affidavit form, the letter should state in straightforward language the reason you can't afford your mortgage and your proposed solution to the problem. You must sign and date a handwritten or typed affidavit letter. A brief but detailed explanation of the hardship is best. It should also include any steps taken to prevent default and any improvements or projected improvements to income, as this helps the lender determine whether your circumstances are temporary or permanent. In many cases, temporary hardship may allow you to obtain a modification so you can keep your home.
Karina C. Hernandez is a real estate agent in San Diego. She has covered housing and personal finance topics for multiple internet channels over the past 10 years. Karina has a B.A. in English from UCLA and has written for eHow, sfGate, the nest, Quicken, TurboTax, RE/Max, Zacks and Opposing Views.