The bank/lender sends out a default notice to the homeowner after 60 days of non-payment. The notice lets the homeowner know that they have less than 30 days to pay the entire amount that's in default. If the total amount due (including late fees) is not paid, then the lender will foreclose on the property. You will receive a certified letter stating the the lender is foreclosing and the date of the foreclosure. If you can pay the entire amount before the foreclosure date, the foreclosure will be stopped and you can continue living in your home.
However once the foreclosure takes place, you will need to make plans to move out, since the new owner will place the house on the market to either sell or lease out.
Unfortunately there are no excess funds available to the homeowner. If there are funds in escrow, the lender will apply toward the amount due on the loan.
Let me know if you have any other questions.