NAME: Rosa Pazhouh
LESSON: Overview of Foreclosure and the Foreclosure Crisis (Model Lesson Plan)
SOURCE: Mostly original – Certain sections pulled from the PBS NewsHour Extra:
What are the Factors Behind a Foreclosure?
(http://www.pbs.org/newshour/extra/teachers/lessonplans/economics/julydec10/foreclosure_10-28.html)
TIME: 50+ minutes (50 minimum – includes more resources so teachers can extend
lesson longer than 50 minutes if they like or cut down)
MATERIALS: Vocabulary sheet handouts; “How Foreclosure Works” article (4
separate handouts); PowerPoint presentation (will need access to computer if viewing
videos)
**This lesson plan was intended for more advanced/older students. However, it may be
amended as necessary since it contains a lot of resources and information that can be
taught to students of varying levels/abilities (videos in particular can be shown to all
ages). This lesson plan includes MORE rather than LESS and could take much longer
than a 50-minute class, but was designed to be adjusted accordingly.
I. GOALS: Studying foreclosure and the recent foreclosure crisis will help students:
 Understand the economic and legal implications of foreclosure
 Understand the basics of home ownership and what rights individuals have as
home owners
 Provide students with the opportunity to study a relevant current effect that has a
mass continuing affect on the American population
II.
OBJECTIVES:
KNOWLEDGE OBJECTIVES:
 Students should understand and explain the general steps of the foreclosure
process
o Key concepts including the roles of homeowners and banks.
o Key terms (mortgage, foreclosure, refinancing)
 Students will be able to articulate very generally what is meant by “foreclosure
crisis”
 Students should understand the general allegations of wrongdoing by banks in the
foreclosure crisis
 Students will gain knowledge of how homeowners are “fighting back”/responding
to the current foreclosure crisis
SKILL OBJECTIVES:
 Students will gain skills working in groups to brainstorm possible solutions to
problems facing homeowners in foreclosure
 Students will learn how to summarize a complex news story and articulate it to
their classmates
 Students will become more effective at speaking to large groups

Learn to assess the impact (emotionally and economically) of foreclosure on
individuals
ATTITUDE OBJECTIVES:
 Learn to respect different viewpoints expressed by fellow classmates
 Students should be able to competently express their emotional responses to the
videos they watch (express “emotional knowledge/maturity”)
 Students should be able to embrace several sides to a story and thoughtfully
balance competing arguments
III.
CLASSROOM METHODS:
OPENING QUESTIONS for students
 Today we are going to be talking about foreclosure and the foreclosure crisis that
took place a couple years ago (and is still relevant/ongoing).
 OPEN WITH VIDEO for perspective:
http://www.pbs.org/newshour/extra/video/blog/2008/10/what_really_happens_in_
a_forec.html. (need not show entire clip)
o Aspect of foreclosure that you never really think of – what happens to the
things in a home that gets foreclosed on?
o What students should take away from this video: How much waste a
foreclosure can result in. How could this problem of waste from
foreclosure be remedied? What solutions can you think of?
o Emotional wake up call to introduce the lesson plan/get students to be
engaged. This is just ONE ASPECT of foreclosure
o Follow up questions (verbal):
1) How does watching this video make you feel?
2) Why do you think the family left so many of their belongings behind?
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ASK: Have you heard anything about the foreclosure crisis? What do you know
about it? Does anyone know what foreclosure means? What happens in a
foreclosure? Don’t worry if you don’t know anything about foreclosure – that is
why we are going to be covering the topic today! Foreclosure/the current
foreclosure crisis is not an easy subject to teach because it is highly complex. That
means we are going to gloss over a lot of things and move quickly – we just want
you to take away the basics and not worry about the more technical aspects.
Explain that in recent times, home foreclosures have reached record highs.
Since 2007, approximately 3 million Americans have lost their homes.
Showstudents the most recent statistics on foreclosures in your area with the
RealtyTrac Map of Foreclosures [http://www.realtytrac.com/trendcenter/]. (MAP
on 2nd slide of power point – hyperlinked to go to website above)
Discuss in general terms the type of impact that foreclosures can have on the
nation’s economy and political landscape. How does a high foreclosure rate affect
everyone?
SUBSTANCE (Allocate approx 15 minutes for Power Point):
 Deciding to purchase a home is a major decision. The price of the home is not
usually what the buyer actually pays out, because many people get a loan, called a
mortgage, when they buy property. The mortgage payment includes a portion of
the cost of the home, as well as interest on the loan. People hope their houses will
increase in value over time, so when they are ready to leave it, they will make
enough profit on the sale to both pay off the mortgage and have some cash left
over as a profit. Previously, families or individuals could not get a mortgage if
they did not have excellent credit, at least 20% down, and poof of income or
assets. The rules got a bit “looser” in early 2000, and lenders seemed to make it
easier to borrow money, even to borrowers less capable of paying back their
loans. Sometimes, it doesn’t work out as planned. Today, we’ll talk about what
happens when the “American dream” of buying a home turns out to be nightmare.
 HAND OUT Blank VOCAB SHEETS – First we need to be comfortable with the
terminology relating to foreclosures (students take notes using these sheets)
 Go over vocabulary in the power point slides.
 For the REFINANCING slide, provide students with more background
information about definition:
o Many homeowners leading up to, and during the foreclosure crisis chose
to refinance their homes. For borrowers who were struggling, this may
have been done to reduce the monthly repayment amount (often for a
longer term, contingent on interest rate differential and fees)
o For many homeowners, this was done to AVOID foreclosure. This means
that the homeowners took out a new loan with the bank and agreed to
NEW terms (interest rates, etc.) in order to be allowed to continue making
payments on their home. The old loan was a thing of the past.
o Banks seem to be more willing to agree to refinancing when the amount
homeowners would have to pay in the long term would be MORE under
the new loan than under the old loan.
 Once students have demonstrated an understanding of the vocabulary words
(filled out their sheets, answering any questions they may have), explain to
students that while many who apply for mortgages are able to keep up with
payments, without incident, there are instances when the buyer of a home can’t
afford to keep up the payments.
 If a home is not paid for, banks are to notify residents that they will lose their
homes, and staff at the bank is to review each file to confirm that they are entitled
to foreclose.
 Ask the class to come up with a reason why someone would miss their payments,
or be unable to afford a full payment. Some possible responses include:
o Loss of a job
o A need to take a lower paying job or part time job due to family
responsibilities.
o Increase in family size
o Unexpected home-related expenses, such as maintenance, taxes,
homeowner’s association fees, utilities
o
o
o
o
o
o
Loss of benefits, such as health insurance, due to the loss or “scaling
back” of a full time position.
An “arm” or a balloon payment, meaning that the loan the individual or
family was granted asked for small payments in the beginning, but larger
payments later.
Unsuspecting buyers assuming a mortgage for which they were
preapproved meant that they could afford to spend up to that amount on
the home.
Illness or a disability that prevents the buyer from working.
The death of, or separation from, a person with whom you planned to
share expenses.
Lack of understanding of the terms of the loan, such as how much money
they would actually have to pay back (see Step 6)
GROUP READING:
 Divide students into groups (4 groups). Hand out to each group one of the four
sheets http://money.howstuffworks.com/personal-finance/debtmanagement/foreclosure.htm - “How Foreclosure Works”, “Effects of
Foreclosure”, “The Foreclosure Process”, and “How to Avoid Foreclosure”. Let
them know they do not need to understand everything stated in the article, but be
able to summarize what’s going on generally. Also be sure to let them know that
this article is a little outdated but still relevant. After giving students time to read
and discuss among groups, ask each group to share to the other groups what their
article was about and what they thought the relevant facts were. Possibly – write
up responses on the board under 4 different headings.
 Allocate approx 15 minutes for activity.
VIDEOS: Rest of class time available. Time permitting, may show 1 or 2 clips– what
ever teacher prefers and can be shown at a different time in the lesson if teacher so
chooses. Students should stay in groups and discuss what they felt/thought after each
video. Pose questions to groups before and after watching video (see below).
Video CLIP #1: Show students brief clip, ask them to determine how the bank’s actions
were illegal in that specific situation/foreclosure.
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CLIP showing how banks may be circumventing the law regarding foreclosures –
“A Bittersweet Homecoming”: The Iraq war veteran James B. Hurley’s home was
illegally foreclosed on and resold while he was overseas serving in the military:
http://video.nytimes.com/video/2011/01/26/business/1248069591390/abittersweet-homecoming.html?ref=foreclosures
Follow up: What should homeowners be entitled to when banks foreclose on their
homes illegally?
Let students know: There are numerous ways that the banks could have foreclosed
illegally – this is just ONE example. Note, however, that not all bank foreclosures
are illegal – many/most are completely legitimate. COMPLEXITY: Keep in mind
that simply because a bank foreclosure is not illegal does not necessarily mean
that the bank, when negotiating the initial mortgage OR refinancing the home,
was being “fair” to the homeowner. A lot of people were taken advantage of (by
being able to take out loans/mortgages at rates that were beyond their means to
pay), but their homes were still foreclosed on legitimately and legally.
Video Clip #2: Activists fighting back against foreclosure – Ask students to identify the
ways in which these homeowners are fighting back against bank foreclosures.
 http://www.pbs.org/newshour/bb/business/july-dec10/foreclosures_10-19.html.
 Follow up questions:
1) Do you think these people/homeowners have a right to fight back against
foreclosure? Why?
2) What are the three steps that the City Life organizers use to fight back against
the current foreclosure crisis?
a) The sword – Physical activism (do not leave the home)
b) The shield – Free legal help to drag out the process of foreclosure
c) The offer – Buy back the foreclosed house, then re-sell it at current
market value to the homeowner
IV. EVALUATION
 Class participation throughout lesson (taking notes, reading article, engaging in
group work)
 Depth and quality of responses to activities and respectfulness of other students’
opinions
 Collection of assignment next class period
V. ASSIGNMENT:
 Go online to http://weshallnotbemoved.net/stories/ and choose one of the stories
on the webpage. Watch the video clip and write a short piece (1 page +)
summarizing the homeowner’s story (e.g., how did they end up in foreclosure?)
Include your own personal reflections – How does this make you feel? What do
you think should be done about the situation? Can you think of any solutions to
help homeowners and/or banks get through the “foreclosure crisis”?
MORE DISCUSSION QUESTIONS (for homework)
 1. If your family had to move out of where you’re currently living, where do you
think you would go?
 2. Based on what we’ve just gone over and what you know about the housing
market, do you think you would buy or rent a house if you had to find a place to
live? Why?
 3. If you were the owner of a bank whose housing borrowers weren’t able to pay
back their loans, how would you deal with the situation? Why?
FORECLOSURE VOCABULARY
Borrower:
Down payment:
Foreclosure:
Home Value:
Interest Rate:
Lender:
Loan:
Mortgage:
Underwater:
Refinance:
FORECLOSURE VOCABULARY (answers)
Borrower: The person who requests or takes out a loan.
Down payment: Also known as “money down,” an amount of money paid outright
when a home is purchased. A typical amount is 20% of the price of the home, so the
buyer takes out a loan on the other 80%.
Foreclosure: When a bank claims a property as their own because the borrower did not
meet the terms of the agreement, such as making the payments.
Home Value: What the house is worth, based on how other houses in the neighborhood
are selling. It can go up or down.
Interest Rate: The percentage above the full amount of the loan the borrower is
expected to pay.
Lender: The company, usually a bank or credit union, that offers the mortgage to a
homebuyer.
Loan: Money lent to a homebuyer. It includes the price of the house, except for any
money used as a down payment, plus the interest.
Mortgage: A loan to be used to buy property.
Underwater: When the amount left to pay on a mortgage exceeds the value of the home.
Refinance: To swap out your old loan with a new loan subject to new terms (interest
rate, monthly payment, etc.)
HOW FORECLOSURES WORKS
By Charles W. Bryant
You made smart decisions on the path to realizing your dream of homeownership. You
prioritized your spending and saved enough money for a small down payment. Your
mortgage broker was creative, accommodating and worked out a loan that fit your
budget. You signed the closing papers, got the keys, moved in and settled into what you
hoped would be a long stay in your home. Then the unthinkable happened. You got laid
off from your job. Or maybe you or a family member had an accident that strained your
finances. If you're in the National Guard, you may have gotten called into active duty,
forcing you to close your business temporarily. Or perhaps your variable rate loan
increased your monthly payments and your home didn't appreciate enough to refinance.
All of these scenarios play out every day in real life, and the sad result can be foreclosure.
If you suddenly find that you can't afford to pay your monthly loan payment, your lender
has the legal right to repossess your home and resell it to recoup the cost of the loan.
Foreclosure is a legal course of action in which nobody really comes out on top. It's a
stressful and unfortunate situation for the homeowner and lender alike. Many people
remain in denial about their finances, making the situation worse. As unfortunate as the
foreclosure process may be, there are things you can do to save your home if you're faced
with it.
As the real estate bubble in the United States has begun to burst, the foreclosure rate has
soared. The housing boom saw unparalleled growth from 2001 to 2005. Adjustable rate
mortgages (ARMs) and subprime loans made buying a house possible for many people
who never thought they had the money or credit to do so. ARMs have low initial rates
that typically go much higher after the first year or two. Subprime loans allow people
with poor credit to secure financing at high rates. Mortgage brokers used both of these
methods to get loans secured, and many of the borrowers soon found out they couldn't
afford their monthly payments.
Here are some startling foreclosure statistics in the United States, according to CNN
Money:
 Nearly 1.3 million homes were foreclosed on in 2006.
 Colorado had the highest rate of foreclosure -- one out of every 376 houses.
 The total number of filings is up 43 percent from 2005.
 Real estate experts predict even more foreclosures in 2007.
Additionally, a recent poll shows that more than six in 10 homeowners wish they better
understood the terms of their loan, and 60 percent of borrowers in mortgage trouble aren't
aware of services that can help them avoid foreclosure [source: FDIC].
HOW FORECLOSURES WORK
By Charles W. Bryant
THE FORECLOSURE PROCESS
The foreclosure process differs by state, but we can take a look at the general steps that are taken.
If you're faced with foreclosure, it's important that you research your state's laws and practices.
Foreclosure proceedings can begin after a single missed payment, but it isn't very likely. Most
banks and lenders have a grace period for late payments, usually with a fee added on. It typically
takes being a full 30 days late for the alarm bells to go off. After the second missed payment,
you'll be getting some phone calls. Many lenders will only accept both late payments to bring the
loan current. They also may refuse any partial payments.
Once you fall three months behind, things get serious. This is typically when most lenders will
begin the foreclosure process in one of two ways: judicial sale, which requires that the process
go through the court system, or power of sale, which can be carried out entirely by the mortgage
holder.
All states allow judicial sale, while only 29 allow power of sale. If your state allows power of
sale, the loan papers will usually have a clause that says this method will be used. Power of sale is
typically faster than the judicial route. Let's look at both methods.
Judicial sale:
 The mortgage lender will file suit with the court system.
 You'll receive a letter from the court demanding payment.
 Typically, you'll have 30 days to respond with payment to avoid foreclosure.
 At the end of the payment period, a judgment will be entered and the lender can request
sale of the property by auction.
 The auction is carried out by the sheriff's office, usually several months after the
judgment.
 Once the property is sold, you're served with an eviction notice by the sheriff's office, and
you must vacate your former home immediately.
Power of sale:
 The mortgage lender will serve you with papers demanding payment.
 After an established waiting period, a deed of trust is drawn up that temporarily conveys
the property to a trustee.
 The trustee will sell the house at public auction for the lender.
 Many times, these foreclosures are subject to judicial review to make sure everything
was carried out legally.
 There is usually a requirement for the lender to post a public notice of sale for the
auction.
Both types of foreclosure require that any other involved parties be notified of the proceedings.
For instance, if the homeowner took out another loan against the house with a third party, that
lender must be contacted and its loan amount must be paid from the auction's proceeds. If the
third-party lender isn't paid, it can apply the mortgage to the new property owner. Many times,
the lender will actually buy the property back and attempt to sell it through the real estate market
at a later date.
There's one more type of foreclosure that's almost completely obsolete, called strict foreclosure.
In these cases, once judgment is made on the lawsuit, the property is automatically assumed by
the mortgage holder. Only Connecticut and Vermont still allow this practice [source: Realty Trac]
HOW FORECLOSURES WORK
By Charles W. Bryant
How to Avoid Foreclosure
Foreclosure is bad for both the lender and the borrower. The homeowner loses his or her
house, and the lender loses anywhere from 20 to 60 cents on the dollar [source: FDIC].
This is important to remember if you fall behind on your loan. The single most important
step you can take to avoid foreclosure is to communicate with your lender. Most people
are scared and embarrassed to the point that they ignore calls and letters from their
lender. This is human nature, but it's the worst thing you can do if you want to hang on to
your home.
Many lenders will work with you to avoid the foreclosure process. They will deal with
your case on a personal level, and your circumstances will be taken into account. If you
only fall one or two payments behind, the mortgage holder will mail you a loan workout
package that will help you catch up with your loan. The package consists of information,
instructions and forms regarding your ability to make payments.
If your situation is temporary, there are some other solutions:
 The Federal Housing Authority (FHA) is willing to help. If your loan is FHAapproved, you can get in touch with an FHA housing counselor who will walk
you through possible solutions. This counselor will negotiate with the lender for
you and will even help you work out a monthly budget plan.
 If the area where you live or work has been declared a natural disaster by the
federal government and you're facing foreclosure, the FHA provides relief plans
to assist you. In most cases, you can get up to three months' relief from your
monthly loan payments while you work out your home or work situation.
 Forbearance is when your lender agrees to suspend your payments temporarily if
you agree to another option to satisfy your loan amount. The option is usually
reinstatement -- you pay the outstanding amount in one lump sum. If you know
you have a large amount of money coming your way soon, these options are good
ways to prevent foreclosure.
 Mortgage modification is when your lender agrees to change the terms of your
mortgage to make it more affordable for you.
 You may be eligible for a partial claim if you're able to begin making payments
again but not able to bring your account current. Your lender would assist you in
getting an interest-free loan that will bring your account current and you can
resume payments. Payment on this loan can be delayed for a period of time.
 If you aren't able to keep your home, you can sell it to pay off your loan. If this is
the case, call your lender -- it can suspend your loan payments while you sell your
house and may even accept less than the loan amount if you sell it quickly. A final
option is to surrender your deed-in-lieu of foreclosure. This is when you simply
hand your property back to your lender.
HOW FORECLOSURES WORK
By Charles W. Bryant
Effects of Foreclosure
The most obvious effect of foreclosure is that you now find yourself without a
home. Many people rely on family at this point to get them through the coming months.
Some people are able to afford to move into an apartment while they get their finances
back on track. Sadly, some people that suffer foreclosure find themselves homeless. Most
states have homeless prevention programs that assist people who are down on their luck
and in need of a boost. If you've been foreclosed on and have no housing options, check
with your state and local department of human services to see if they can assist you.
Your credit rating is another way foreclosure can affect you. While being
foreclosed on does have a negative impact on your credit rating, it doesn't damage it
beyond repair. Credit ratings are based on your credit history, so the foreclosure will be
factored in along with everything else. If you had a good rating before you fell behind on
your loan, you might be surprised at how high your credit score is after you foreclose.
The most important thing to do after foreclosure is to try and repair your credit. Make
sure all your other accounts are current and paid up. You may try and secure a smaller
loan -- making payments on this loan will help you repair your credit. You may even be
able to secure another home mortgage at a less-than-prime rate with a large down
payment.
If you've been foreclosed on, you may have trouble finding or keeping
employment. Some employers require a good credit rating to get hired, and foreclosure
can even be grounds for termination. Stress and depression are also common effects of
foreclosure. A lack of self-esteem and self-worth are typically associated with people that
have lost their homes.
The trickle down effect of foreclosure can also have a serious impact on your
community. One foreclosure can ring up as much as $34,000 in local government agency
bills. Trash removal, unpaid utilities, sheriff and police costs, inspections and potentially
even demolition of the property all contribute to that cost. Property values also decrease
near foreclosed properties. In some housing markets, up to $220,000 in reduced property
value can be expected [source: Apgar, Duda, Gorey].
Crime is another common effect of foreclosure. Slavic Village, Ohio, is the
leading community for foreclosures in the United States. As of November 2007, more
than 800 houses sat vacant in this Cleveland suburb. These homes are usually looted
within 72 hours of becoming vacant. Aluminum siding, gutters, doors, windows,
molding, appliances and basically anything else of value is stripped from the home and
sold for profit. These homes are typically wrecked in the process as well, with looters
using sledgehammers to break through walls to remove valuable copper wiring. With
windows and doors removed, houses are open to the elements. Many abandoned houses
become dumping grounds for people that don't want to pay for trash removal. The
community of Slavic Village is fighting back with organized crime-watches and
persistent pleas to the local police force [source: CNN Money].