What Happens If I'm Upside Down on My Mortgage in Indiana?
Being upside down — or underwater — on your mortgage means you owe more than your home is currently worth. This situation limits your options but does not eliminate them. Indiana homeowners in negative equity positions have several paths forward, each with different financial and credit consequences. This page explains your options clearly.
Call (317) 495-3440 — Free ConsultationWhat Does It Mean to Be Upside Down on a Mortgage?
You are upside down (or underwater) on your mortgage when your outstanding loan balance exceeds the current market value of your property. For example, if your home is worth $150,000 but you owe $200,000, you have $50,000 in negative equity. This situation became common after the 2008 housing crisis and can occur due to declining property values, a high loan-to-value purchase, or cash-out refinancing. Being upside down does not mean you must sell or lose your home — but it does limit your options if you need to sell.
Option 1: Stay and Continue Paying
If you can afford your current mortgage payment and plan to stay in the home long-term, staying put and continuing to pay is a viable option. Property values in Indiana have generally appreciated over time, and negative equity is often a temporary condition. As you pay down the principal and values recover, your equity position improves. This option works best if you have stable income, can afford the payment, and do not need to sell in the near term.
Option 2: Short Sale with Lender Approval
A short sale allows you to sell the property for less than the amount owed, with your lender's approval. The lender agrees to accept the sale proceeds as full or partial satisfaction of the debt. The key negotiating point is whether the lender will waive the deficiency — the difference between the sale price and the amount owed. Under IC 32-29-7-11, Indiana lenders can pursue deficiency judgments. Always obtain a written deficiency waiver before completing a short sale.
Option 3: Deed in Lieu of Foreclosure
A deed in lieu allows you to voluntarily transfer the property to your lender in exchange for release from the mortgage obligation. Like a short sale, the deficiency waiver must be negotiated in writing. Lenders typically require the property to be free of other liens before accepting a deed in lieu. This option avoids the public foreclosure process but results in losing the property without any equity recovery.
Option 4: Foreclosure and Its Consequences
If you stop paying and do not pursue a short sale or deed in lieu, your lender will eventually foreclose. The foreclosure process in Indiana typically takes 12–24 months. After the sheriff sale, the lender may seek a deficiency judgment for any shortfall under IC 32-29-7-11. A completed foreclosure has the most severe credit impact and the highest risk of a deficiency judgment. It is generally the worst outcome for homeowners who have options available.
Indiana Legal References
The following Indiana statutes are referenced on this page. Links go directly to the Indiana General Assembly website.
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