When someone describes a home as "upside down" or "under water," they are referring a deficit between the value and the remaining mortgage. For example, if someone purchased a home in 2005 for $800,000, the balance of the mortgage is currently $600,000 and the home will sell around $400,000, the home is under water by $200,000. In this scenario, in order for a property to sell without being a short sale the owners would need to pay off the additional $200,000 of the mortgage.
Just because someone's property is under water doesn't mean that they have to participate in a short sale. If they are still capable of making the payments, do not wish to pay off the balance of the mortgage and do not have a need to move, the best course of action is to stay in their home while the market continues to correct.
