What do do when your house is “under water.”

“Under water” and “Upside down” are two terms from the lending marketplace which translate into the same thing.  You owe more to the lender than the asset is worth.  For example; you have a $300,000 mortgage, but your house is only worth $250,000 in the market.

If the lender ( loan service company) is willing to take whatever you can get from the sale of the house as total payment on the mortgage, sell the house and take the deal.  It’s just like a margin call on a stock you bought on credit.  The rule on stocks is never answer a margin call.  Let the broker sell the stock and you take the loss.  Not fun, but the laws of financial physics say that things in motion tend to stay in motion in the direction they are heading.

But, you say, I’ll loose my down payment on my house.  You’ve already lost the down payment, just like you already lost on the stock.  It’s the way leverage works.  Great as the market goes up.  Murder as it goes down.  It’s part of the risk.  (Oh, you didn’t know that.  Whose fault is that?)   Take the deal. 

But, you say again, if I hold the property the price will come back.  Maybe, maybe not.  The big question is how long will it take to re-coup that money.  While your waiting are you missing out on some other opportunity.