What happens if family members are living in the house in FL but the owner lives elsewhere and owner has decided to default on loan payments?

The owner of the loan or mortgage would then have to evict the family who has established themselves as tenants. There is no such thing as squatters actually. Paying rent or not they likely qualify as tenants

Do you mean that they are related to you or related to the owner? (Or both.)
'What happens' depends on the owner, the lender, and the town.
Either the lender or the town will foreclose and the property will go up for sale or auction and anyone living there without permission/lease/any arrangements will be evicted. They won't have any rights. They could even be tossed out by the police if they moved in without permission in the first place (it sounds like they did?).

I meant to say they won't have any squatter rights.

Yes, squatters rights is a myth in today's legal system, They are either a trespasser, a resident, a tenant and so on.
What they are will depend on what rights they will have

But if the owner stops paying, the properly gets foreclosed and those people living there will either have to pay rent to the new owners or they will be evicted.