Foreclosure happens when someone fails to make mortgage payments on a repeated basis. One missed payment does not trigger foreclosure, but multiple missed payments can get the process started. It does take months, but the bank can eventually seek an eviction and reclaim the property that was purchased with the loan.
But banks do not really want to own houses and would highly prefer that homeowners simply made their loan payments on time. So once a bank does take the house, what do they do with it? They usually try to sell it as quickly as possible to reclaim as much of the borrowed money as they can, and there are two main ways that this is done.
Listing the property
To start with, banks will sometimes simply list the property, and other prospective homeowners or their real estate agents can make an offer. The idea is typically to sell the property as quickly as they can, so they will likely just list it at market value.
A related concept is a short sale, which can help the bank avoid foreclosure and having to reclaim and sell the property in the first place. With a short sale, the bank may approve a sale that is even lower than the amount remaining on the loan. This does cost them money, but it is often seen as a positive because it can result in a quick sale and they can reclaim most of the value of that mortgage.
Putting it up for auction
In other cases, banks will hold a public auction. Potential buyers are allowed to bid on the property. This can be an effective way to buy real estate, but it can also be competitive. If there is a lot of interest in the property, it could drive the price up further than people expect, and the auction format means that purchase offers are not being accepted or rejected in the traditional sense. Instead, buyers are directly competing with one another.
All of these types of real estate transactions can be complex, and those involved must be well aware of their legal options.