Owe more than your house is worth in Georgia? Your options when you are underwater

Say you owe $250,000 on the loan and the house would sell for $220,000 today. Then take out what it costs to sell, say $17,000 for the agent and closing.

People call this being underwater. It usually happens when prices dip after you buy, or the loan was large to start. It limits what you can do, but it doesn't end it.

The county has the loan papers on file, the security deed, and it shows what was borrowed. It does not show what you owe today. Only your loan company has that number, and it can be higher than you think once late fees and interest are added.

Ask your loan company in writing for a payoff statement. Federal rules give it seven business days to send one. It can take longer in some cases, such as when a foreclosure or a bankruptcy is already under way. Ask a local agent for a price opinion, or pull the sales near you. Then the other half of the math is real too.

When you sell, the loan gets paid off at closing. If the price is less than the payoff, the lender won't release its claim on the house, and the sale can't close.

A direct buyer pays less than a full listing, not more, so on an underwater house the gap only gets bigger. That is true for us too. We can only buy an underwater house if you bring the gap to closing. The other way is for the lender to sign off on a short sale at our price. If neither one can happen, a direct sale is off the table, and the options below are where to look.

Some of these keep the house. Some end with you moving on. All of them go better if you start before you miss payments, not after.

Of the steps below, the last one protects you most. A short sale ends the loan, but it does not always end the debt. The lender may forgive the rest, or it may keep the right to come after you for it. Ask it to waive the rest, get that in writing, and keep the letter.

The fear under all of this is often your credit. Can you ever buy again? The missed payments, if there were any, are on your report already. What a short sale or deed in lieu changes is what comes after.

For a loan backed by Fannie Mae, the wait to buy again is four years after a short sale or a deed in lieu. It is seven years after a foreclosure. Some hardships are out of your hands, such as a job loss or a death in the family. Then those waits can drop to two and three years. Other loan types set their own rules, so ask a lender or a HUD counselor about yours.

When a lender forgives part of a loan, the IRS often counts the forgiven part as income. The lender will usually send you a Form 1099-C.

For years, a tax break let most owners skip that tax on a main home. The IRS says that break covers debt forgiven before January 1, 2026. It also covers debt forgiven under a written deal signed before that date. Debt forgiven in 2026 under a newer deal is not covered unless the law changes.

One other way out may still apply. Your debts may have been bigger than everything you own when the debt is forgiven. If so, you may not owe the tax on some or all of it. A tax pro can check your numbers before you sign a short sale or hand the house back.

Once the bank has set a sale date, time is the main problem. A short sale may not have time to close. In Georgia, if the bank sells for less than you owe, it can't sue you for the rest unless a judge first confirms the sale. The pages below cover each of those steps.