When failure to make interest and principal payments occurs, or other lack occurs for provisions in the original loan agreement, the loan is considered in default. When this happens the lender will notify the loan servicer (this is an independent company that works with the borrower) that a default notice is to be filed. This is the first of several steps that ends in the foreclosure sale. In California, this process takes about four months.
Before a foreclosure sale, the borrower and lender may come to an agreed upon arrangement that negates the need for a foreclosure sale. If a borrower can bring a default to and by becoming current on all the payments, there is no need for a foreclosure sale. Sometimes a lender may choose to give an extension on the maturity of the loan.
Two main outcomes are typical for a foreclosure sale. A lender will either end up as the owner of the property in question or a third party makes an "all cash bid" in hopes of purchasing the foreclosing property that the lender accepts rather than taking the property back.