Owing more than your house is worth

If you owe more on your mortgage than your house would sell for, you're "underwater", and in Louisiana you're far from alone. If you can keep up the payments, staying and paying down the loan is often the best choice. If you can't, a loan modification, a short sale or giving the house back to the lender can limit the damage. A cash buyer or a loan against the house usually can't fix it.

You're not alone

In mid-2026, 10.3% of Louisiana mortgages were seriously underwater, meaning the owner owed at least 25% more than the home was worth. Only Minnesota had a higher share; nationally it was 3.2%. Among large metro areas, Baton Rouge (10.9%) and New Orleans (8.5%) were near the top. Mississippi ranked fourth, at 6.4%.

There's some good news: Louisiana's share fell from 11.9% a year earlier, the biggest drop of any state in ATTOM's report.

Find out where you stand

1. Get your payoff. Ask your servicer for a payoff statement: the full amount to pay off the loan by a set date. It must send one within seven business days of a written request, though it gets more time once a foreclosure has started.
2. Estimate the price. Look at recent sales of similar homes nearby, or ask an agent for a market analysis.
3. Compare. If the payoff is more than the price, you're underwater. If it's more than the price minus selling costs, such as the agent's commission and closing costs, a sale won't cover the loan.

If you can keep paying

Staying is often the best choice. Every payment lowers what you owe, and prices can recover. Being underwater isn't, by itself, a problem with your lender.

Most refinances need equity, but a few don't. If your loan is backed by FHA, VA or USDA, ask about its streamlined refinance: none of the three agencies requires an appraisal for it, so being underwater may not block you. All three expect a record of on-time payments. Fannie Mae's and Freddie Mac's refinance programs for underwater loans have been paused since 2021.

If you can't keep paying

Talk to your servicer and a free HUD-approved housing counselor as soon as you see trouble coming.

• A loan modification can lower the payment. A Fannie Mae or Freddie Mac Flex Modification can also set part of the balance aside, interest-free, until you sell, refinance or pay off. It's postponed, not forgiven.
• A short sale means selling for less than you owe, with the lender's approval of the sale and the price. Fannie Mae releases you from the rest of the debt after a completed short sale, and FHA's version forgives the shortfall too. With any lender, get the release in writing. You'll usually need a listing agent; Freddie Mac requires one.
• A deed in lieu means giving the house back to the lender to settle the loan; in Louisiana it's a "giving in payment", or dation en paiement. Fannie Mae, Freddie Mac and FHA programs release the rest of the debt when you meet their terms, and can help with moving costs.
• Bankruptcy may help in some cases. Ask a bankruptcy lawyer.

What happens to the rest of the debt

If a lender forecloses and the sheriff's sale doesn't cover the loan, Louisiana law matters. If the house was sold without an appraisal, under a waiver in your mortgage, you no longer owe the shortfall personally. If it was appraised first, the lender can ask the court for a judgment for it. In Mississippi, a lender has one year after the sale to sue for a shortfall.

Forgiven debt can also count as income. The tax break for forgiven debt on a main home doesn't cover debt forgiven after December 31, 2025, unless the deal was put in writing before 2026. If you owed more than everything you owned was worth just before the debt was forgiven, you may still exclude some or all of it. Your lender may send you a Form 1099-C. Talk to a tax professional before you sign.

Why a cash buyer usually can't fix this

A cash buyer, including Passkey, pays a price based on what the house is worth. If you owe more than that, the sale can't pay off the loan, and your lender would have to approve it as a short sale anyway. A loan against the house has the same problem: there's no equity to lend against.

Free help

• A HUD-approved housing counselor, free or low-cost: use the CFPB's counselor finder or call HUD at (800) 569-4287.
• Southeast Louisiana Legal Services, free legal help if you qualify: 1-844-244-7871, or slls.org.
• Behind on payments too? Read Behind on your mortgage in Louisiana: every option.

How Passkey can help

Usually we can't, and we'd rather tell you that up front. If you're not sure whether you're underwater, call us and we'll look at whether a sale or a loan could work.

Questions

Can I sell my house if I owe more than it's worth?

Yes, if you bring cash to closing to cover the difference. Otherwise, your lender has to approve a short sale for less than you owe.

Should I stop paying my mortgage to get a short sale?

No. Missed payments add fees and can lead to foreclosure. Fannie Mae can approve a short sale for someone who isn't behind yet but is likely to fall behind. Talk to a housing counselor first.

Will I owe taxes if my lender forgives part of my mortgage?

Possibly. The tax break for forgiven debt on a main home ended for debt forgiven after 2025, unless the deal was in writing before 2026. Being insolvent may still help. Ask a tax professional.