How does it work and what are the consequences of getting into a foreclosure? What about the CMHC insurance? Wont it cover the mortgage amount for the bank?

This is a loaded question. Foreclosures are just properties that for one reason or another that a lender or third party has acquired due to some type of default. CMHC insurance does cover the bank but does not mean that CMHC will sell the property for any price. Some foreclosures are good deals. (I believe in Ontario they are called power of sale) Some are not such good deals due to the fact that there are no warranties or representations attached from the sellers. By the way someone going into foreclosure would be a motivated buyer.

sheldon is correct ;Foreclosures are just properties that for one reason or another that a lender or third party has acquired

Simply put a forecloseure results in the lender taking the profit. Power of Sale indicates a shortfall on the proceeds to making the sale.

Any thoughts about a rise in the amount of power of sales and whether the 0% downpayment has had any impact of the number of defaults?

Not only the 0% downpayment, but also the 1% and interest only loans will, I believe, be the first ones to go bellyup. No downpayment to most homeowners is just like paying rent and they can walk away from their homes since their investment loss could well be zero.

Fortunately the Canadian equity market operates very differently then the States. We have very little for exotic mortgages and the requirements to get 0% down are at the very least a great beacon score. When 5% down came out the media was all over the fact that those would be the most susceptible to foreclosure. That bubble never burst either. Face the facts. Our population is growing. The markets are getting larger and we are going to see in time more foreclosure, because the criteria to get exotic mortgages will decrease as cmhc gets more competition.