A foreclosure occurs when a homeowner has fallen behind on their mortgage payments and after a certain time has passed (typically 3 to 6 months) the lender will send a notice that the home will be put in foreclosure and sold. The owner then has a period to pay back the balance owed, with the length of time varying from state to state. If that time passes without the homeowner catching up in payments the lender will then sell the home at auction, with the winning buyer usually having to pay in cash within 24 hours.
The impact of a foreclosure can be significant on the homeowner as not only will they lose their home but they will also face significant financial implications. Credit scores take a significant hit (200-400 points) and the foreclosure will remain on a credit report for 7 years. Purchasing a new home later is difficult also, only allowed after 5 years with some restrictions, or 7 years with no restrictions.