The reason you occasionally see homes that appear to be for sale for ridiculously low prices is that it is not a listing, but a solicitation by RealtyTrac to sign up for their service ($49.95?) to get what any realtor can give you for free. Best explained by my friend and felllow Windermere agent Carl Medford on his blog: http://www.trulia.com/blog/carl_medford/2008/12/when_is_the_
Let me try to "set the stage" for the answer to your question.
Foreclosure is the "end" of a process that begins when a homeowner falls behind on his mortgage payments. Usually when the homeowner is three months behind, the lender issues a "Notice of Default" which formally tells the homeowner that they are in violation of the terms of the mortgage contract and unless it is brought current the lender has the right to foreclose. (Hold on, we're getting to the answer you want)
Many times the homeowner is able to either "catch up" on payments or make satisfactory payment arrangements with the lender and that is the end of it.
If the homeowner truly can not make the payments and there is no reasonable way they will be able to in the next few months, the best option is usually a "short sale". That occurs when 1) a homeowner can not make the payments AND 2) the amount of the mortgage is more than the home will sell for. In this situation the home is put on the market in the traditional way (seller chooses a local Realtor, etc) and it is like any other home sale EXCEPT that, because the lender will be losing money on the transaction, the lender has the right to approve (or reject) any buyer's offer that the seller agrees to. Banks are overwhelmed with short sales and and it will typically take at least 30 days, more likely 60, 90 or even longer to get an answer from the bank.
If a short sale is not successful (or not tried) then the lender has the right to "Foreclose". That means the home goes for sale at an auction on the steps of the county courthouse. This is not like any auction you've ever been to and the biggest reason is that the buyer must have cash or cashier's checks for the entire amount of a successful bid. Many times the bids are less than the lender thinks it might sell for on the open market. In that case, the lender will usually out-bid anyone else on the courthouse steps and literally buy the home.
Then the home has been "foreclosed on" and the lender puts it on the market with a Realtor and it sells like any other home.
Just to give you some idea of the scale of what's happening in San Ramon, there are currently 75 homes owned by a lender (they call it Real Estate Owned, or REO for short). 14 of those are actually listed for sale with a Realtor today. Sooner or later all the others will come on the market, because banks really don't like to own real estate. There are also 31 "short sale" homes on the market today, and 81 that are neither foreclosures nor short sales.
I hope that helps. Feel free to ask more questions.