In this market, a number of people find themselves "under water". That is, the value of their home is less than the amount they owe on it. This only becomes a problem if the owner has to sell or needs to refinance because of an upcoming adjustment in their interest rate. In this situation, the homeowner is not going to be able to refinance because of the decreased value. It is possible that the lender could re-write the deal.
If you are in this situation and the lender will not rewrite the deal, there are a number of options that you have in order to maintain your credit as much as possible. Below I list a number of different options. While I have listed them from worst to best, everyones situation is different and whether or not something is good for you or not will depend on your circumstances.
The first is to wlak away and let the home go into foreclosure. This is the least preferable option and will do the most damage to you credit. You stop making payments, the lender forcloses and takes possession of the property. You would still have potential liabilty for the difference between the amount you owed and the lender was able to sell the house for.
Second, if deed in leau of foreclosure. This is where you contact the lender and offer to turn the property over to them in sted of the lender foreclosing. Credit wise, thisis better than foreclosure.
Next, is a short sale. This is where the lender allows you to sell the property for less than the amount owed on the property. There are a number of factors the lender will look at in approving a short sale. A number of them are:
1) how long the house has been on the market.
2) The price the house was listed at and any price adjustments.
3) The Realtors opinion as the the value of the home.
4) The financial circumstances of the owner. This should included any negative changes in you finances, the reasons you need to sell for less, and any other unique circumstances.
5) A purchase and sales agreement for the lower purchase price.
If the lender accepts the short sale for your property, you will be forgiven the amount between the sale price and the price owed. This, is usually the best prospect for most people. The process is long, make sure you have people helping you that have experience in short sales.