Foreclosure facts for kids
Foreclosure is a legal process that happens when someone stops paying back a loan, especially a loan for a house. If you borrow money to buy a house, the house itself acts as a promise, or collateral, that you will pay back the loan. If you stop making payments, the person or bank who loaned you the money (the lender) can start a foreclosure. This process allows the lender to take ownership of the house and sell it to get their money back.
When someone buys a house with a loan, they usually sign a special agreement called a mortgage or deed of trust. This agreement says that if the borrower doesn't make their payments, the lender has the right to take the house. Foreclosure is how the lender legally takes back the property.
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What Happens During Foreclosure?
When a borrower misses payments on their loan, the lender will usually send notices. If the payments are not made up, the lender can begin the foreclosure process. This process can be different depending on where you live.
Steps in the Process
The main goal of foreclosure is for the lender to get back the money they loaned. Here are the general steps:
- Missed Payments: The borrower stops making their regular loan payments.
- Notices: The lender sends official notices to the borrower about the missed payments.
- Legal Action: If payments are not made, the lender starts legal action to take back the property. This might involve going to court.
- Property Sale: Once the foreclosure is complete, the lender can sell the house. They use the money from the sale to pay off the loan and any legal costs.
What if the Sale Doesn't Cover the Loan?
Sometimes, when a house is sold after foreclosure, the money from the sale isn't enough to pay back the whole loan. In some places, the lender can then ask the borrower to pay the remaining amount. This is called a deficiency judgment.
Why Foreclosure Happens
Foreclosure often happens because people face financial problems. They might lose their job, have unexpected medical bills, or other situations that make it hard to pay their mortgage. Economic problems, like a housing bubble bursting, can also lead to many foreclosures.
Other Reasons for Foreclosure
While missing mortgage payments is the most common reason, foreclosure can also happen for other unpaid debts related to the property. For example, if a homeowner doesn't pay their property taxes or fees to a homeowner association, those groups can sometimes start a foreclosure process too.
See also
In Spanish: Ejecución de hipoteca para niños
- Occupy Homes
- Repossession
- Short sale (real estate)
- Vacant property
