EMPLOYMENT LETTER

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                                                                   EXHIBIT 10.12

[HANOVER CAPITAL MORTGAGE HOLDINGS, INC. LOGO]

                                EMPLOYMENT LETTER

April 14, 2005

Harold McElraft

34 Meyersville Road

Chatham, NJ 07928

Dear Mr. McElraft:

Please allow this letter to serve as the entire agreement between Hanover

Capital Mortgage Holdings, Inc. (the "Company") and you, Harold McElraft (the

"Employee") with respect to certain aspects of your employment with the Company.

The Company acknowledges and agrees that the Employee is and will remain a

partner of, and has and will retain an interest in, Tatum CFO Partners, LLP

("Tatum"), which will benefit the Company in that the Employee will have access

to certain Tatum resources.

                                 Beginning Date

The Employee will work for the Company as a full-time employee beginning on

April 14, 2005.

                                  Compensation

SALARY: $240,000 annually ("Salary"). Employee's Salary may be increased from

time to time, by the Company as determined by annual reviews and performance

evaluations consistent with the policies of the Company for its executive

management.

CASH BONUS: As determined from time to time and approved by the compensation

committee of the Company's Board of Directors.

EQUITY: Subject to future considerations.

During the course of the Employee's engagement hereunder, the Employee will

remain a partner of Tatum. As a partner of Tatum, Employee will share with Tatum

a portion of his or her economic interest in any stock options or equity bonus

that the Company may grant the Employee and may also share with Tatum a portion

of any cash bonus and severance the Company may pay the Employee, to the extent

specified in the Full-Time Permanent Engagement Resources Agreement between the

Company and Tatum (the "Resources Agreement"). The Company acknowl