A foreclosure is a property that has been forfeited by the owner for lack of payment. If the lender can’t sell the house by short sale and the house fails to sell at a foreclosure auction it becomes the property of the lender and is known as a Foreclosure. In essence the lender takes back the property rights from the owner due to non-payment.
This is different from a short sale where the owner and the lender work together to sell the property before the lender forecloses sending the house to foreclosure auction.
It can take awhile for a property to be foreclosed upon. The foreclosure process is different depending on the state in which you live. Generally speaking it is usually due to a hardship like medical problems, medical bills, loss of a job.
Normally, after missing three to six months of payments the lender files notice with the court and places notice on the home or in local advertising. After 30 to 120 days the home goes into pre-foreclosure. It is at this time the owner may make attempts to arrange a short sale. The next step is the auctions were the house is put on the block and offered to the highest bidder. If the owner does not purchase the home at the auction and no other party buys the home at auction it reverts back to the lender.
At this point the property is now known as REO property or Real Estate Owned Property. The lender usually has arrangements with local real estate agents who than list the home for sale as a REO listing. However at this point some lenders do group properties and sell them in liquidation auctions