One of the most frightening titles you can own right now is “homeowner.” That’s because millions of us have completely lost the equity in our homes, which means we are in the unenviable position of owing more than the home is actually worth. Nobody asks for their home’s value to fall, but plenty of homeowners are now in the position of trying to dispose of mortgages that are considered upside-down.

There are several ways to do this. First, you can actually find someone willing to buy your house for enough dough to cover all of the mortgages it secures. NOTE: That’s probably not going to happen so proceed to Option #2. Option #2 is to pay the difference out of your own pocket. So, if you owe $150,000 and find a buyer at $125,000 you’d have to show up at closing with a check for $25,000 to cover the difference. If that’s not an option then you can walk away from the home (foreclosure), turn the keys back over to the lender (forfeiture of deed in lieu of foreclosure), or attempt to have the loan modified and stay in the property. Finally, you can attempt to short sell the home.

A short sale is when the lender accepts less than the full loan balance and considers the loan to be paid. So, in the aforementioned example, if the lender had accepted $125,000 as a full payoff then you would have been on your way to a successful short sale. The lender would eat the $25,000 deficiency and everyone would call it a day. But it’s not that simple. There’s the impact this event will likely have on your credit.

Read more at: Mint.com/blog

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