They have a limited amount of time to cure the situation.Two basic positions: they have equity and can sell their house as normal.

If it was covered I then had to figure out if it would be cheaper the pay the loss or cure the defect. 

The landlord gives a notice to quit or cure and if they don't leave the landlord evicts EVERYBODY in the property due to violation of the lease by allowing unauthorized occupants (assuming your lease covers who should be occupying the property) 2.

The owner's redemption period goes away Jan 1 08, and the time to cure period is lengthened.

As a lender, you have the right to foreclose non-judicially so long as you follow the procedures and recognize the protections for the borrower, right to cure, etc.

Once you have acceptance from the 2nd, you can attempt to cure the 1st (reinstate the loan), and avoid the property getting foreclosed on. 

You must inform the tenant that they can cure default by paying within this time frame.

The cure is often worse than the disease and the success rate is very low. 

Not sure about your local market conditions, but in mine, no bank will entertain offers (even if all cash) that much below ask price without it getting some time on the MLS.That is why having the relationship could be your cure all in this scenario.

@Ariel Bullinger...common fear from many buy & hold investors...proper screening is the best cure for that.