Banks and other lending institutions provide loans for purchasing a new home. When the loan is accepted, the homeowner agrees to make mortgage payments, which are regular payments to pay off the loan plus interest. Besides your credit worthiness, the lender secures this loan by putting in the loan agreement that if you fail to repay the loan, they can recover the property. When you have missed multiple payments, the lending institution will begin the proceedings to take back your property, or foreclose on the property.
States vary in their foreclosure laws, but most states require a period of redemption, where the homeowner has a chance to catch up on their payments, before losing their home. They would have to pay all missed payments, the interest on these payments, and any additional fines or costs. Someone in this situation may look for other avenues to temporarily fund their loan, then sell the home themselves to pay off the loan and the additional funds received. They would still be out of their home, but not have the stigma of a foreclosure on their record.
If the homeowner fails to make these payments, then the lending institution will foreclose on the home. The lender will then seek to sell the home as quickly as possible in order to recover their investment. In the current real estate market, foreclosure homes often do not sell for the amount of the initial loan. In this case the lender will continue to seek repayment of the remaining loan from the homeowner. They have the right to place a lien on any other properties the homeowner may have as well as other means to recoup the loan.
According to the bank foreclosed homes guide, a savvy real estate investor will seek out homeowners before a foreclosure, and attempt to purchase the home from them directly. The homeowner is in a dire situation, and will sell at a price that will allow them to pay off their loan, foregoing any profit. In the right situation, this is good for both the homeowner and the real estate investor. The investor gets a home at a great price, without the hassles of dealing with a foreclosure, and the homeowner is bailed out of their bad situation.