Underwater and divorcing

Upside down in the house

You bought in 2022 at the top, rates doubled, and now the house is worth less than the loan. There is nothing to split and nothing to buy out, but there are still two names on the note. Here are the real options, with Colorado numbers.

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The math

Negative equity is marital debt

Colorado divides debts equitably too. A $30,000 shortfall is split like a $30,000 credit card, unless the decree says otherwise.

The catch

Nobody can buy out nothing

A refinance needs equity; most lenders cap at 80 to 95 percent of value. The keeping spouse usually needs an assumption or a modification instead.

The hold

Rent it until it is right side up

Possible if the rent covers the payment. You stay tied together; every rule goes in the decree.

The exit

Short sale, with the waiver

If holding is not realistic, a lender-approved sale with the deficiency waived in writing is the clean break.

The short answer

When the house is underwater, the divorce question changes from “who gets the equity” to “who carries the shortfall and the risk.” Four realistic paths: one spouse assumes the loan (FHA and VA make this possible without equity), you hold and rent it under strict decree terms until values recover, you bring cash to closing and sell, or you short sell with the deficiency waived. Which one is right depends on how far underwater, whose credit, and how long you can stand being tied together.

Run the number honestly

Value from a written market analysis, not the Zestimate, minus the payoff, minus about 7 percent in selling costs. On a $520,000 home bought at $560,000 with $535,000 owed, the shortfall at sale is about $51,000. That number is what the two of you are dividing, and it is why “just sell it” is not free. A written valuation, free to both spouses.

The four paths, and what each needs

AssumptionFHA and VA loans can be assumed by the keeping spouse without a new appraisal or equity, with the servicer’s credit approval and a release of liability for the leaving spouse. Conventional servicers rarely allow it. 60 to 120 days. Assumptions.

ModificationDivorce is a recognized hardship. A modification can lower the payment and, in some programs, remove a borrower. Keep paying while it is reviewed.

Hold and rentWorks when rent covers the payment, taxes, insurance and HOA. The decree must name who manages it, who covers shortfalls and repairs, how the loss or gain is split, the exit trigger (value, date, or equity target), and what happens on a missed payment.

Sell with cash to closeIf the shortfall is small and there is savings or a retirement account, paying the difference at closing ends the entanglement. The decree allocates the cash.

Short saleWhen none of the above is realistic. Three to six months, lender sets the price, deficiency waiver in writing, possible 1099-C. How it runs.

Protect your credit while it is sorted out

Keep the payment current, whoever the temporary orders say pays. One 30-day late costs both of you.
Set alerts on the servicer account and check it monthly until your name is off.
Do not let the house go to foreclosure to end the argument; a deficiency judgment follows either name. The Colorado foreclosure clock.
Put every dollar either spouse pays toward the house after separation in the stipulation, with how it is credited back.

Questions people ask

Can I just sign the house over to my spouse and walk away?

You can quitclaim the title; you cannot quitclaim the loan. Until the servicer releases you, an assumption closes or the house sells, you are liable and it is on your credit.

Can my spouse make me pay half the shortfall?

The court divides marital debt equitably, which often means half. Negative equity is treated like any other joint debt in the property division.

Will values come back?

Nobody knows the year. Denver-metro prices have historically recovered from every dip, but holding a house with your ex for three years is a decision about your life, not the market.

Is there any program for underwater owners in Colorado?

Not a broad one today. Servicer loss-mitigation options (modification, forbearance, partial claim on FHA loans) and HUD-approved counseling through the Colorado Foreclosure Hotline are the live tools.

Hard times, handled quietly

We have sold underwater houses, negotiated short sales and stopped foreclosure clocks for divorcing owners. Quietly.

A divorce with no equity, two incomes that just became one, and a lender who does not care about the decree is the file we see most in a down year. The Kenna divorce real estate team, led by Damon L. Chavez, Certified Real Estate Divorce Specialist, runs the numbers first and tells you the truth: sell, short sale, hold, or fight the foreclosure.

Your information stays with us. We will not contact you without your permission, and nothing here is logged to an account.

A written net sheet with the house sold, short-sold and kept

The Colorado foreclosure timeline against your court dates

A lender who will tell you the truth about a refinance on one income

The hotline, legal aid and fee-waiver numbers, free

Talk to the team, free

Where to go next

Plain-language education, not advice. Divorce Decisions is published by The Kenna Real Estate Group at Keller Williams DTC, a real estate team. Nothing here is legal, tax, lending or financial advice, and reading it does not create any professional relationship. Colorado law and lender rules change; confirm anything that matters to your case with a licensed Colorado attorney, a tax professional, and your lender. See our full disclaimer.

Call your Colorado divorce agent

Questions about the house, the deed or the decree?

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Ask about the underwater house

Tell us the balance, the loan type and roughly what it is worth. We will send both spouses the same four-path net sheet, free. Nobody is contacted without permission.

Call or text 303-955-4220

A live person answers. Not a robot, not a phone tree. Prefer email? homes@kennarealestate.com