Situation
When the house is underwater
Owing more than the house will sell for is one of the hardest spots to be in. It's also one where clear numbers, early, change what's possible.
This situation
What changes.
The short answer
If the house may sell for less than you owe plus closing costs, get exact numbers first: a written payoff statement for every loan and lien, and a realistic sale price. Then take those figures to your lender and your attorney before you list. Ask the lender, in writing, what it would take to approve a sale that doesn't cover the payoff.
- 01
Find out if it really is underwater
Guessing is risky here. The only way to know is to put an honest sale price next to the real payoff. That means a written payoff statement from each lender, including any home equity line, plus the cost of selling.
I'll give you both a pricing analysis and an estimate of closing costs. You request the payoffs, since the lender will want to hear from a borrower. Then we compare them in the equity split calculator, which will show a negative number honestly. Don't skip this.
Ask for a payoff on every loan secured by the house, not just the first mortgage, and tell me about anything else you think might be recorded against it, because I'd rather we find it now than after a buyer has signed.
- 02
The gap has to come from somewhere
If the sale price won't cover every lien and the costs of the sale, the difference doesn't vanish at closing. It has to be paid, or a lender has to agree to something else. Who covers it between the two of you is a property-division question, and under ORS 107.105 the court considers reasonable costs of sale when it divides property.
This is where your attorney earns their fee. Ask how the shortfall would be allocated, and whether bringing money to closing, or asking a lender to accept less, makes more sense in your case. Ask your CPA, separately, whether any forgiven balance has tax consequences for you.
Get both answers before you list.
- 03
Questions for your lender
Get each answer in writing. Phone answers get lost. If you're both on the loan, I'd like you to make the call together or copy each other on the email, so neither of you is relying on the other's summary. Requests like these can take a lender time to answer, so start as soon as you suspect the numbers are tight, and keep a log of every call: the date, the person you spoke to and what they said, so either of you can pick up where the other left off.
- What is the exact payoff, good through what date?
- Would you consider approving a sale for less than the payoff, and what would you need from us?
- If one of us keeps paying and the other stops, how does that show on each of our credit reports?
- Who on your side handles requests like this, and how do we both get copies of every letter?
- 04
Keep the payment current
Missed payments can make a hard situation worse. While your case is pending, ORS 107.095 lets the court issue temporary orders on who pays the liens, and your attorney can ask for one if you can't agree. Until then, the loan is a contract with the lender, and the lender wasn't a party to your divorce.
Signing a quitclaim deed doesn't change this. Your name stays on the loan.
If you're both still on the loan, set up a way for each of you to see the payment history, online or by monthly statement, so neither of you has to take the other's word that the payment went through.
- 05
Your options, side by side
Once you have the numbers, there are a handful of paths to compare with your attorneys: one of you keeps the house and the payment, you both bring money to closing, you ask the lender to accept less, or you keep paying while you decide. Each one moves cost and risk between the two of you differently. Write each one down.
The path finder lays out the routes for your situation in plain language, and it's a good way to walk into the attorney meeting with the choices already listed.
- 06
What I do differently here
Pricing honestly matters most here. I price it carefully and say so plainly. Overpricing an underwater house to make the numbers look better only adds months of payments, so I'd rather show you both the likely range and let you and your attorneys plan around it. I also keep a written record of every showing, piece of feedback and offer, because a lender or a court may want to see exactly what the market said.
I don't promise a result I can't control. What I can do is move quickly once you've both agreed on a plan. If an offer comes in below what's needed to cover the payoff, I'll send it to both of you right away with the gap spelled out in dollars, so you and your attorneys can decide with real figures in front of you.
The basics, in a short answer.
What if we owe more than the house is worth?
Sources · checked 23 Oct 2026
Ask Larissa
Questions people ask
Can we just walk away from the house?
That's a legal and financial decision with consequences for both of your credit and possibly your taxes, so it belongs with your attorney and CPA. I'd ask you not to stop paying before you've talked to them and to the lender. Getting real numbers first, and putting them in front of everyone, keeps more options open.
Who pays the shortfall at closing?
Whoever your agreement or the court says pays it. Under ORS 107.105 the court divides property as may be just and proper and considers reasonable costs of sale. Some couples split a gap evenly; others offset it against other assets. Your attorneys work that out. I make sure you're both looking at the same figure.
Should one of us keep the house until it's worth more?
Maybe, if one of you can carry the payment alone and qualify for the loan. Try it in keep or sell. Keep in mind that the other spouse stays on the loan unless it's refinanced, sold or the lender releases them, which matters if the market doesn't move the way you hope.
Confidential consult
One conversation, no pressure.
Tell me where things stand. I’ll tell you what the sale could look like for your situation, and what to ask your attorney first.