i also don’t really get “foreclosed” i’m guessing it means they’ve missed mortgage payments?
Edit: thanks everyone, lots of good info here!
In: 4
So, you’re right in that they’re because of missed mortgage payments. Basically, a mortgage is a document that says “The bank is buying this house for you to live in, and you will pay X amount every month for Y years, and after that you will own the house” in a lot of legal language. This is considered a type of secure loan, in that there is collateral attached to the loan that can be repossessed if you fall into default (that is: they’ve stopped assuming that you’re ever going to pay off the debt). When you default on a mortgage and the bank “repossesses” your house, that’s called a foreclosure for obscure legal reasons that don’t merit getting into (and also that I couldn’t reasonably explain as I don’t really understand them fully either)
As to how people buy foreclosed homes: the bank takes ownership, but banks don’t have much use for a house that is sitting alone, not generating them an income through mortgage interest, so they sell that house. Because of how people are, a lot of times if someone is being evicted due to a foreclosure, they’ll trash the house on their way out. Or, other times, the reasons they stopped paying are things like a disability stopping them from working that also had an adverse effect on their ability to keep up with maintenance on the house.
But I digress – sometimes when a house gets foreclosed, they’ll get put up for auction. Other times they’ll get listed by a real estate agent. There are other ways that a foreclosed house can be sold, but I don’t fully understand them and they’re outside the scope of ELI5 most likely, but those are the two main ways.
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