What is an “Underwater Mortgage?”

Underwater mortgages are mortgages where the value of the property is less than what is owed on the property. This condition has become more common in the last few years because of the housing bubble, where real property values were significantly inflated, and banks were lending based on this excess.

In Oregon and Washington, on first mortgages only, most consumers are protected by laws called anti-deficiency statutes. These laws prohibit lenders from suing borrowers for deficiencies on the first mortgages of their primary residence if they cannot pay the balance. However, except in limited circumstances in Oregon, there are no such protections for second or third mortgages. This leaves consumers vulnerable if they short-sell or foreclose on their real property.

In some cases, it is possible to strip off second and third mortgages through the chapter 13 bankruptcy process. Contact us for a free initial consultation to discuss whether this option may be available to you.