Maryland

Underwater Mortgage in a Divorce: Your Options

An underwater mortgage means the loan is larger than the sale price. Maryland Family Law Article section 8-205 contains no 50/50 rule, so your agreement or a court sets the split. Get a payoff letter and one neutral value. Ask your lender about options and your attorney who owes the shortfall.

By Marc Cormier

Licenses: Maryland #620443 | Virginia #0225175181 | DC #SP98365998 | Berkshire Hathaway HomeServices

27+ years in real estate. 800+ closed transactions.

Certified as a Certified Divorce Real Estate Expert (CDRE) in 2014.

Last updated: October 2, 2026

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What does underwater mean in a divorce?

An underwater mortgage is a loan that is larger than the sale price. The house is worth less than you owe.

The gap is called a shortfall. A shortfall exists before you pay one dollar of agent commission or closing cost. Selling costs make it bigger.

How do you confirm the numbers?

Get two things before you decide anything. A payoff letter from your lender and one neutral valuation of the home.

Ask each lender for a payoff letter. Use it, not the statement balance. Interest accrues and fees apply.
Include every loan secured by the home. A second mortgage or home equity line adds to the payoff.
Agree on one neutral valuation. Agree in writing on a tiebreak rule if two values differ.
Put the two numbers side by side. Value minus payoff is your starting gap.

Two opinions of value give each spouse a number to defend. One shared number ends that argument.

How big is the shortfall once you add the costs of selling?

Add the costs of selling to the shortfall. That total is the cash needed at closing. Made-up numbers.

Line	Amount
Home value	$400,000
Mortgage payoff	$430,000
Shortfall before selling costs	$30,000
Agent commission (6% of $400,000)	plus $24,000
Closing costs	plus $8,000
Total cash needed at closing	$62,000

Check the math: $430,000 minus $400,000 is $30,000. Six percent of $400,000 is $24,000. $30,000 plus $24,000 plus $8,000 is $62,000. The 6% commission is an example rate. Commission is negotiable.

Ask your attorney who owes the shortfall. Ask your lender what options exist on your loan. Get both answers in writing before you list.

What does waiting for a year cost?

Waiting adds carrying cost every month. Value moves up or down. The table assumes value stays flat. Made-up numbers.

Line	Sell now	Wait one year
Cash needed at closing	$62,000	$62,000
Carrying cost ($3,500 a month)	$0	plus $42,000
Total exposure	$62,000	$104,000

Check the math: $3,500 times 4 months is $14,000. $3,500 times 12 months is $42,000. $62,000 plus $42,000 is $104,000.

Carrying cost is the monthly total of the mortgage payment, taxes, insurance, and utilities. Your number depends on your loan and your house. Add it up before you list.

Value rises or falls during that year, and no one knows which. If it rises, the gap shrinks. If it falls, the gap grows. The table assumes flat value so you see the cost of time alone.

What are your three practical paths?

Three practical paths exist. Each one needs a written agreement between you and your spouse. I describe the paths here. I do not state the rules that sit behind them.

Wait and keep paying. You keep paying the carrying cost and hope value recovers. Set a written end date and a written rule for who pays what each month.
Ask the lender about options. Call the lender on your loan and ask what options exist. Ask your attorney who owes the shortfall. Get both answers in writing before you list.
Bring cash to closing. If you both agree in writing, cash covers the gap at closing. On the example above, that cash is $62,000.

Pick the path before you list. Listing first and deciding later is how carrying costs pile up.

What does Maryland law say about the house and the debt?

Maryland divides marital property equitably. Family Law Article section 8-205 contains no 50/50 rule.

Section 8-201 defines marital property as property, however titled, acquired by one or both parties during the marriage. Section 8-205(a)(1) says that after the court determines marital property and its value, the court is allowed to transfer an interest in property, grant a monetary award, or both. Section 8-205(b) lists factors the court considers, including the value of all property interests of each party and the economic circumstances of each party.

Section 8-208(c) lets the court order either or both parties to pay the mortgage and related indebtedness, along with maintenance, insurance, assessments, taxes, or similar expenses, during use and possession of the family home.

Ask your attorney how these sections apply to a house worth less than the loan.

WHAT THIS MEANS FOR YOUR HOUSE

Underwater means the mortgage is larger than the sale price.
Use the payoff letter and one neutral value to size the gap.
Selling costs make the gap bigger. Add them before you decide.
Waiting has a monthly price. Value goes up or down.
Maryland has no 50/50 rule. Your agreement or the court sets the split.
Ask your lender about options and your attorney who owes the shortfall.

Where this goes wrong

I have seen this mistake before. One spouse quotes the statement balance. The other quotes an online estimate of value. Each spouse plans around a different gap. Nothing moves for months and the carrying costs keep running.

Using the statement balance instead of the payoff letter.
Forgetting a second loan or home equity line.
Counting the shortfall and forgetting the costs of selling. In the example, $30,000 became $62,000.
Waiting for value to rise without a written end date. Twelve months at $3,500 is $42,000.
Listing before you have the lender answer and the attorney answer in writing.
Assuming half is the law. Section 8-205 lists factors and contains no even-split rule.

This is where people usually get hurt. They wait on a hope and pay for it every month.

Local note for Montgomery County: The Montgomery County Circuit Court runs a Family Law Self-Help Center. It is a free walk-in clinic staffed by attorneys, in the South Tower, First Floor, Room 1500. It gives general legal information or limited legal advice on divorce, custody, and related matters. You still pay case fees and costs. Source: https://www.montgomerycountymd.gov/circuit-court/services/family-law-self-help-center

Questions about an underwater mortgage in a Maryland divorce

What if the house is underwater?

An underwater house is one where the mortgage is larger than the sale price. In a made-up example, a $400,000 sale price minus a $430,000 mortgage leaves a $30,000 shortfall. Ask your lender what options exist on your loan. Ask your attorney who owes the shortfall. Get both answers in writing before you list.

How do I find out how far underwater my house is?

Get a payoff letter from your lender and one neutral valuation of the home. Subtract the value from the payoff. In a made-up example, a $430,000 payoff minus a $400,000 value is a $30,000 gap before selling costs. Use the payoff letter, not the statement balance, because interest and fees change the number.

What is a payoff letter?

A payoff letter is a written statement from the lender that shows the exact amount needed to pay off the loan on a stated date. It differs from the statement balance because interest accrues and fees apply. Example: $250,000 balance plus $1,050 interest plus $150 late fee equals $251,200.

What does it cost to carry the house while it sits unsold?

Carrying cost is the monthly total of the mortgage payment, taxes, insurance, and utilities. In a made-up example at $3,500 a month, four months cost $14,000 and six months cost $21,000. Your number depends on your loan and your house. Add it up before you list.

Should we wait to sell until the value rises?

Waiting costs money every month. Value moves up or down and nobody knows which. In a made-up example at $3,500 a month, 12 months of carrying cost is $42,000. Compare that number with the shortfall before you choose to wait. Agree on the plan in writing and ask your lender about your options.

Is Maryland a 50/50 state?

No. Family Law Article section 8-205 contains no 50/50 rule. The court weighs eleven factors, including each spouse's contributions, the value of all property interests, economic circumstances, how long the marriage lasted, ages, physical and mental condition, and how and when the property was acquired. Spouses who agree set their own split in writing.

Can the court make my spouse pay the mortgage while we disagree?

Section 8-208(c) lets the court order either or both parties to pay the mortgage or rent, related indebtedness, maintenance, insurance, assessments, taxes, or similar expenses. Section 8-208(a)(2) lets the court act while the case is pending. Ask your attorney whether to request an order and how to word it.

Can one spouse refuse to sell?

If both names are on the deed, neither owner sells alone. A spouse who refuses blocks the sale until the spouses agree or the court acts. Try written terms, a valuation tiebreak rule, and mediation first. Section 8-205 gives the court tools for a jointly owned home. Your attorney explains how they apply to you.

Do you need a divorce attorney?

You should have your own. I am a real estate agent. I do not give legal advice, and I do not work for one spouse against the other.

I am not affiliated with any law firm. I do not recommend one attorney over another. Your spouse needs their own attorney, not yours.

If you need to find one, start with the bar association referral services:

Links open in a new tab.

What an attorney handles	What I handle
Who gets the house and the money	The value of the house
The marital settlement agreement	The net sheet
Court orders that affect the sale	Listing, showings, offers, and closing
Custody, support, and everything outside real estate	A written record of every showing and decision

General information only. Not legal, tax, or financial advice. The referral services are independent of me. I do not guarantee any attorney's work or results.

About the Author

Marc Cormier