mortgage

What if you're upside down in your home?

It doesn't seem like you're getting ahead if the values of both your home and portfolio are going backward.

The stock market has certainly tested the mettle of Americans in the last 15 months. Declining home values are even tougher to take. Some 16 percent of American households -- one out of six -- are underwater, according to Moody's economy.com. Among those who bought a home in the last five years, nearly a third (29 percent) owe more on their homes than they are worth, according to Zillow.com.

Having negative equity is like walking on a treadmill with an injured knee. You don't get anywhere, and it's painful. If you're lucky enough to be financially solvent, that puts you in the enviable position of being able to make the house payments, even though it feels like you're throwing hard-earned money into an abyss.

Below, we look at the predicament of a typical family. The "Smiths" are making payments on a house that lost one-third of its value over the past three years. We then ask three Certified Financial Planners for solutions, which they provide in their own words.

Meet the Smiths

John and Sandy Smith, in their late 30s, are current on their house payments. They married last year. Sandy has a daughter, age 12, from a previous marriage. Near the market peak in 2005, Sandy purchased a two-bedroom/two-bath condo in lovely Boca Raton, Fla., for $225,000. It seemed like a good buy at the time.

Because John and Sandy married, they discovered that the space in the 1,500-square foot condo is not optimal for a family of three, so they put it on the market eight months ago. Their asking price is $199,900 -- significantly less than what Sandy paid for it.

John and Sandy's real estate agent held an open house on two consecutive Sundays recently. No one showed up -- not even a nosy neighbor.

Their asking price is not low enough. Several neighbors have since put their condo units on the market, with asking prices ranging from $145,000 to $290,000. (John says the latter figure is way too high because no units have ever sold for that much).

A handful of units have sold since January; their listing prices ranged from $150,000 to $175,000. Three sold for in the neighborhood of $150,000. A fourth sold for $132,500. Some of the sellers owned their units for a very long time, so they sold at a profit, John says.

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