More bad news on the housing bust front: Nearly 25% of all mortgage borrowers were underwater, meaning they owe more on their loans than their homes are worth.
First American CoreLogic, the research firm that monitors housing equity, reported Tuesday that 11.3 million homeowners — or 24% of all homes with mortgages — were underwater as of the end of 2009. That’s up from 23% and 10.7 million borrowers three month earlier.
For many homeowners, being underwater, also known as negative equity has few consequences. If they’re not planning to sell and can afford their monthly bills, they can wait out the downturn.
For others, however, plunging underwater can spell disaster. If they become unemployed or have a financial emergency, they have no equity to tap. Or, if they need to downsize or sell their home to relocate for a job, they can’t.
If you can pay your bills, and take care of your family, and have no plans of leaving your home, having an underwater mortgage can be fixed with time and patience, when the economy improves. For those who cannot pay their bills, or need to walk away from their house, bankruptcy may be an option. A chapter 13 bankruptcy will allow you to payback any arrearages through the plan, and if that is no longer an option, a chapter 7 may be used to liquidate the debt.