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Q&A: What does it mean to be 'under water'?

Q: I’ve heard the expression so many times that many houses are “under water.” What exactly does that mean, and what should I do if my house is?

A: A house is “under water” if the value of the house on the current market is less than the amount you owe on your mortgage. That means that if you wanted to sell your house tomorrow and could only get $250,000 for it, but you owe $325,000 to the bank you couldn’t make a profit. In fact, you’d lose money and still owe the balance to the bank, says attorney Mitchell Hirsch of Hirsch and Hirsch LLP in Hempstead.

This is when many homeowners consider a short sale. The lender will consider approval of a short sale if the above circumstance exists. However, an additional factor must be present -- a demonstrated inability to meet the current monthly mortgage obligation, says Hirsch.

“Typically, the owner must also be approximately three months in arrears on their mortgage payment, thereby placing the property in pre-foreclosure status. Approval of a short sale is by no means guaranteed,” he says.

Homeowners in this type of trouble should only work with very experienced professionals who are appropriately credentialed in this field. In this economy, short sale "experts" are preying upon those at the greatest risk.

If you can still afford the monthly mortgage payments, keep paying, advises Hirsch. “What we have learned from this crisis is that one's house is not like other investments -- it's a home and its value may go up or down. The only thing that really counts is the quality of one's family life while living there and what it's worth when the family is grown and you then want to sell,” he says.

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