Foreclosure occurs when a property owner does not have the ability to make payments on their mortgage. In a nutshell, it means that the bank takes ownership of the property by forcing a sale on the home. Foreclosures can take an owner's equity and ruin their credit.
When an owner misses payments for a period of time (usually 3-6 months), the lender notifies the trustee to tell the borrower that they are in default. If the payments remain unpaid, the bank has the ability to foreclose on the property. Details regarding how long the owner has, and the minimum payment required are in the NOD.
If the borrower fails to reinstate the loan for the amount owed within the timeline of the NOD, then the property will be sold at a public auction. If the foreclosure reaches this step, the borrower loses all equity on the property. The lender (usually a bank) takes over the property and sells it to the highest bidder.