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Why you should avoid foreclosure

08/02/2012 Jeremy Bachmann


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When you fall behind on your mortgage payments and cannot catch up, you risk allowing your home to fall into foreclosure. Foreclosure is a legal action the mortgage company must take to assume ownership of the property when the required loan payments are not made. Since this can seriously damage your credit, you should explore all other options.

The first thing you should do is contact your mortgage company. There may be ways for your lender to modify your loan to make your payments more affordable so you can stay in your home. Everyone's situation is different. Sometimes the best alternative for your financial future is to start fresh in a more affordable home.

If you find that there is no possible way for you to afford your mortgage payments, two alternatives are a Short Sale or a Deed-in-Lieu. Both of these are better for your credit history than a foreclosure. Here is a brief explanation of each:

  • Short Sale: the mortgage company allows you to sell the property and use the proceeds to pay the mortgage, even if the home sells for less than what you owe on the loan
  • Deed in Lieu: if you cannot sell the home, you can transfer ownership of the property to the mortgage company, and you no longer owe anything

If you are a PennyMac customer, our Loan Specialists can review each of these in detail, so you can determine which option is best for you. Because each of these options requires you to move from your home, PennyMac may be able to offer you a relocation assistance package, including cash to help cover the costs associated with finding and moving to a new home.