After assembling over a hundred short sale packages I have found that more than any other document the hardship letter can help make or break a short sale. While banks care most about dollars and cents, it is important to remember that the package will be reviewed by an individual loss mitigator. Like the rest of us, this loss mitigator is a real person with real emotions who cannot help but be influenced by a sincere story of hardship.

As a real estate short sale investor working with pre-foreclosure clients your job is to coach the homeowner to create a compelling letter that is both accurate and moving. While a distressed homeowner can be sensitive to their embarrassing situation, you will find that if you proceed delicately and make your intentions clear, that they will be very open to your help. Make it certain to the homeowner that more than anything else the hardship letter is the piece of "evidence" that can make or break the short sale deal, and therefore be the difference for them between a fresh start and credit shambles.

The short sale hardship letter can be typed or handwritten, but we have found that handwritten is most effective. It should contain some standard elements at the top of the letter including the name of the borrower(s), the date, the lender and the loan number. The end of the document should have the borrower's signature with the date, as well as the signature of any co-borrower. The length is not important so make it as long as needed to have the desired impact.

Tell the homeowner that the short sale hardship letter should contain no b.s. excuses, complaining about the lender or finger pointing. This is a time to be bluntly honest and ask for forgiveness (without begging). I always suggest that they open the letter with a declaration of their situation. "I regret having to write this letter, but unfortunately due to our financial hardship we are no longer able to pay on our mortgage. We ask that based on our current inability to make payments that you consider working with us to find a better solution with a short sale."

The bulk of the hardship letter will tell the story of why the homeowner is unable to make pay the lender. Only include details that would influence the lender to have mercy on the homeowner and to work out a short sale. Before meeting the homeowner to collect their documents give the distressed homeowners some brainstorm ideas on what are reasons that would motivate the bank to negotiate. Reasons such as illness or death in the family are best, while reasoning such as poor financial management is all but worthless. I always tell homeowners that the "drama is in the details" and that the hardship letter is successful when the loss mitigator sheds a tear on it.

When you meet with the homeowner I strongly suggest that you review their short sale hardship letter with them. Nine times out of ten you will find that they have included details that hurt their case and miss out on a lot of details that will be helpful. One short sale tip is to bring standard notebook paper have them write a new hardship letter if there is any improvement that can be made. While the hardship letter needs to be readable, it does not need to be a perfectly typed and formatted letter. Neat and orderly does not send the message of "I am in distress".

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