The foreclosure process begins when the owner of a property is unable to make scheduled payments on the loan account; payments are comprised of principal or interest, or a combination of both. When the owner stops making payments, the lender, upon proper notification to the owner of the property, can begin the process of foreclosure in order to force the sale of the property to recoup the principal, interest and penalties owed on the loan.

Each state has its own foreclosure laws, and it’s important that a lender follows the foreclosure laws to the letter. There are two foreclosure processes, a judicial foreclosure and a non-judicial foreclosure, and the process used is dependent upon the state in which the property is located: Under a judicial foreclosure, the foreclosure must be ordered by a court, after a hearing of both parties is held. In a non-judicial foreclosure, if there exists among the loan documents a “power of sale” clause, the lender can proceed with the foreclosure under the tenets of the clause. If there is no clause, the lender must proceed with foreclosure under specific guidelines.

The foreclosure process goes through several stages before the actual seizure of the property; at any stage, the property owner has the right and the opportunity to avoid foreclosure by bringing the loan current, which is paying off the arrears.

When the homeowner has not made regularly scheduled payments over a specified period of time, usually between three and six months, the lender arranges for a Notice of Default to be filed among the public records of the county recordation office. This public notice puts the borrower on official notice that the lender has initiated foreclosure proceedings against him.

If the borrower is unable to bring the payments current, and the loan remains in default, a sale date for the foreclosed property to be auctioned is established. A Notice of Sale is recorded with the county recordation office, and published in a local newspaper. An additional Notice of Sale is sent to the property owner. Finally, a Notice of Sale sign is posted directly on the property. The Notice of Sale will provide details of the date of the sale, time and place. The foreclosure sale usually takes place at the steps of the county courthouse, in the jurisdiction where the property is located.

At the foreclosure sale, the property is auctioned off to the highest bidder, who is expected to pay cash and who takes the property sight unseen, and usually without the benefit of owner’s title insurance. The starting bid will be equivalent to the loan balance (or balances), interest accrued, and any associated lender or attorney fees. If there are no bidders and the property remains unsold, the bank buys the property back, and the property is now deemed an REO property.

Sources:
http://www.biggerpockets.com/foreclosure-process.html
http://www.foreclosures.com/www/pages/state_laws2.asp?state=WA
http://www.thehomestoreonline.net/foreclosure-process.htm