Short Sale Background


Background: Foreclosures and delinquency rates for mortgages are occurring in record numbers for Temecula real estate, Murrieta, Winchester, Menifee, Hemet, San Jacinto, Nuevo, Perris, Lake Elsinore, Wildomar, and Canyon Lake areas of California. 1 out of 213 homeowners are behind in their mortgage payments. Reasons include high unemployment rates, loss of income due to decline in consumer spending, slower housing starts, and mortgage rate increases after conclusion of teaser-rate periods. Also contributing to the difficulties in making mortgage payments is the softening rental market. Investors who have rental homes from Temecula to Perris, have a harder time getting sufficient rents now to cover their mortgage payments or even getting tenants because of an increase in rental properties on the market. Higher insurance costs are adding to the difficulty for borrowers to keep up with their mortgage payments. Now that property values have significantly decreased in the Southwest Riverside County of California, these owners are in a predicament. Many have negative equity, i.e. owe the lender more on the mortgage than the property is worth. When this is the case, and the borrower needs to sell, one solution is a “Short Sale”.

Definition: A “Short Sale” is when the lender agrees to accept a payoff for less than the remaining mortgage balance to allow the sale of the property. The lender may forgive the entire shortfall, as well as pay the seller’s closing costs including the Realtor fee. The loss is either completely written off by the lender, a payment arrangement is made with the borrower (promissory note), or a lump-sum for a potentially lesser amount is agreed to (cash contribution). The short sale lender may also seek the deficiency from the borrower after the sale.

Why Would A Lender Accept a Short Sale? Banks don’t want to own your Temecula area real estate. A foreclosure can cost a lender $30,000 to $60,000. They have to maintain the property, market the property, pay for utilities, then spend money on closing costs. They would rather do a Short Sale- which saves them carrying and legal costs and generally is less expensive for them. Bottom line – with a short sale, you’ve done the work for them!


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