Loan Modification Hardship Reason #3: Death of the Borrower

What is “Death of the Borrower”?

Death of the Borrower is one of the five valid hardships that qualify you for a loan modification.

Why is identifying a hardship a required part of a loan modification?

Part of the loan modification process includes proving to your mortgage lender that you had a valid financial hardship and that the financial hardship caused you to miss payments on your mortgage.

Lenders view loan modifications as “2nd chances” to make mortgage payments so they want to make sure that you defaulted based on legitimate financial hardship.

Lenders want to offer loan modifications to people who experienced unavoidable and serious financial hardship.

The main government-backed investors (FHA, VA, Fannie Mae, Freddie Mac, and USDA) have identified the 5 valid financial hardships below as valid financial hardships to qualify for a loan modification:

1. Job Loss / Reduction in Income
2. Illness of Borrower (Medical Expenses)
3. Death of Borrower
4. Divorce / Separation
5. Unforeseen Expenses

The purpose of this post is to help you get qualified for a loan modification if the only financial hardship that applies to you is “death of the borrower”

Read the complete guide to What to Do When a Borrower on the Mortgage Dies

Who is allowed to apply for a loan modification following the death of the borrower?

• Any surviving co-borrowers on the mortgage

• The executor of the deceased’s estate (as long as the deceased borrower’s will gives you the authority to make decisions about the property)

• The personal representative/administrator appointed by the probate court (if the borrower dies without a will)

What supporting documentation do you need to have to validate this hardship?

• The death certificate of the deceased borrower

• The probate documents that prove to the mortgage lender that you are the party who has the legal rights to be handling the home.

• These documents are called the“Letters Testamentary” if the borrower died with a will.

• These documents are called the “Letters of Administration” if the borrower has died without a will and you get appointed by the probate court.

If you are a co-borrower on the loan, all you need to provide (in addition to the required loan modification package) is the death certificate of the borrower.

These are the things that should be included in your hardship letter for a “death of the borrower” hardship:

If you’re using “death of the borrower” as your hardship reason, don’t just say that the borrower passed away:

• Tell the lender the date of the borrower’s death and direct them to the attached death certificate

• Tell the lender how the death impacted the household finances and why the mortgage fell behind as a result of the death

• • Usually, death of the borrower impacts the household income by reducing the overall household income (if the deceased borrower was contributing income). Or, the resulting expenses related to dealing with the death (funeral costs, burial costs etc.) are so expensive, it causes the household to start missing mortgage payments.

In your hardship letter, make sure you tell the lender that the hardship has been resolved

Because you’re applying for a loan modification, you’re trying to prove to the lender that you can resume making a regular mortgage payment again and that the financial hardship is over.

So, you need to tell the lender how the expenses caused by the death of the borrower have been resolved or are no longer an issue.

Since you’re applying to keep the home and resume a regular payment, you need to tell the lender how you plan to afford the mortgage payment moving forward since the borrower’s death is a permanent situation.

Know what your back-up options are if you cannot afford the home following death of the borrower

This financial hardship reason is not easily resolved since death is permanent.

If you are feeling like it will be hard to make mortgage payments, it may be time to look at other loss mitigation options to avoid foreclosure:

• Equity Sale: If your home has equity in it, you can sell your home, fully pay off your mortgage, and receive funds from the proceeds of the sale. An equity sale can free up some cash so you have money to relocate to a more affordable situation.

• Short Sale: A short sale allows you to sell an underwater property for less than what is owed on the mortgage. Your mortgage lender approves the sale and then typically waives the deficiency balance (the remaining amount owed) so you can sell your home and move on without owing the remaining balance.

• Deed in Lieu of Foreclosure: A deed in lieu of foreclosure is an agreement between yourself and your mortgage lender where you sign a document giving the house back to the bank in exchange for the bank agreeing not to foreclose on you.

• Foreclosure Mediation: Foreclosure mediation in the state of Washington can protect you from foreclosure and help you speak directly to your bank about your alternatives to foreclosure.

Death of the Borrower Hardship Letter Example  #1

Date (month, day, year)

Borrower Name(s):
Loan Number:
Property Address:

Re: Hardship Letter

Dear ________(lender name):

Please accept this hardship letter.

In _______(month / year), ________(name of deceased borrower) passed away. Attached please find the death certificate.

The household income was cut in half when ____(name) passed away and the cost of the funeral depleted our savings account.

My household was forced to prioritize daily living expenses and we defaulted on our mortgage shortly after the death.

Since then, my mother has moved in with us and has become a full-time household contributor. She has SSI income and W-2 income and contributes 100% of her income to the household.

At this time, the income has stabilized and we would like to save the home. We are able to resume making regular mortgage payments at this time.

Sincerely,

Borrower Name

Death of the Borrower Hardship Letter Example #2

Date (month, day, year)

Borrower Name(s):
Executor Name:
Loan Number:
Property Address:

Re: Hardship Letter

Dear ________(lender name):

Please accept this hardship letter.

In _______(month / year), ________(name of deceased borrower) passed away. Attached please find the death certificate.

I am the executor of the estate and the deceased party’s child. The Letters Testamentary are attached.

The mortgage fell into default while the borrower was alive, prior to my involvement due to reduction in income on behalf of the borrower.

At this time, the estate would like to retain the property so we are applying to assume the loan with a loan modification.

We have the required funds to resume regular mortgage payments.

Sincerely,

Executor Name

Sometimes, your lender causes your default…

Sometimes, the reason you default on your mortgage can be caused by your lender.

Sometimes, they service release (sell) your loan to a new lender which can cause problems in the application of your payments, causing you to fall behind.

Other times, they lose payments in their system and forget to notify you – if you don’t check your bank statement regularly, you may fall behind and not know it until you get a default notice

If something like this is happening to you, you should reach out for help to a professional.

The solution still may be to apply for a loan modification, but you should speak to an attorney to get help regarding how to present your financial hardship.

If you are a Washington State homeowner and have questions about your loan modification application, your hardship, or how to write your hardship letter, please feel free to reach out for a consultation at (425) 654-1674.