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Underwater Mortgage Options

Short Sale

A short sale is when you sell your house for a price that is less than (short of) what you owe on the mortgage. The mortgage holder must agree to accept the lower amount as payoff. In most cases, mortgage holders want to see evidence that you have some hardship preventing you from staying in the house and paying the mortgage. There are potential credit, tax, and legal consequences associated with a short sale. Learn more

Strategic Default

"Strategic default" has typically referred to the choice made by homeowners who can afford their mortgage payments but choose to walk away. Typically, a strategic default takes the form of simply letting the bank foreclose. That's because other options -- like short sale or deed-in-lieu of foreclosure -- typically require the homeowner to prove a hardship. If there is no legitimate hardship, the bank is not likely to agree to a short sale or deed-in-lieu. Learn more


A foreclosure is when the bank takes possession of your home because you failed to make your mortgage payments. The foreclosure process differs by state -- sometimes it goes through the courts, sometimes not -- but it is always one potential outcome of your decision to stop making your mortgage payments. (And, as we've said, when you stop making your payments, even if you're going to try for a short sale or deed-in-lieu, foreclosure is a potential outcome you need to prepare for.) Learn more

Loan Modification

A loan modification is a change in the terms of your mortgage loan. It could be a change in the interest rate, or a change in the type of loan, or a change in the payoff period. It could be through one of the government Home Affordable Modification Programs (HAMP) or not (either way, the loan modification can only be approved by your mortgage lender). Learn more

Do Nothing

For some homeowners "doing nothing" -- no loan modification, no short sale, no strategic default, just paying the mortgage on the 1st of every month like always -- is the best option. Now, this doesn't mean that you don't take action today; you absolutely need to take action to determine which is the best option for you given your unique circumstances. Learn more

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