What is Negative Equity?

Legal Definition
Negative equity occurs when the value of an asset used to secure a loan is less than the outstanding balance on the loan. In the United States, assets (particularly real estate, whose loans are mortgages) with negative equity are often referred to as being "underwater", and loans and borrowers with negative equity are said to be "upside down".

People and companies alike may have negative equity, as reflected on their balance sheets.
-- Wikipedia
Legal Definition
A mortgaged asset's market value is below the loan amount taken against it. Some loan agreements force the borrower to cover the loss. The lender may 'call' the loan, demanding immediate loan balance payment .