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What does it mean if my mortgage is underwater?

Even if a reader of this Pennsylvania bankruptcy-and-debt-relief-law blog is completely unfamiliar with the term ‘underwater mortgage’ she may have a feeling that it is not a good thing. Being underwater implies the possibility of drowning, and an underwater mortgage is effectively that: it is a mortgage loan that is greater in size than the value of the home it is attached to and that drowns an owner in financial difficulties.

Underwater mortgages make it very difficult for mortgage holders to sell their homes. In order to do so a mortgage holder might have to pay out of pocket the difference between the value of his home and the balance on his mortgage. Consider, for example, a party that holds a $200,000 mortgage on a home that is valued at $150,000. That would mean that after selling the home at value the mortgage holder would still have to make up $50,000 in order to be out from under the loan.

Sometimes individuals who suffer from the weight of underwater mortgages are unable to keep up on their monthly loan payments. This can lead to the equally difficult process of seeing one’s home fall into foreclosure. Foreclosure is the process through which a loan holder, generally a bank or other financial institution, reclaims the property that secured the loan and effectively evicts the individual who was unable to make payments on the mortgage’s balance.

Since an underwater mortgage can cause these and a host of other significant problems for a person it is important that those suffering understand their options for protecting their finances and their homes. Loan modification programs and refinancing options can help homeowners reduce their monthly burdens to affordable payments. Attorneys who work in the debt relief and bankruptcy fields of law are well suited to advise clients on their options for dealing with underwater mortgages.