Buying Foreclosures Worth the Trouble?

Foreclosure cycles come and go, but this one is different.

"This is the biggest foreclosure cycle we've ever seen since the Great Depression," says Rick Sharga, VP of marketing at RealtyTrac Inc., an online real estate marketplace that tracks foreclosures.

With so many foreclosure properties there for the taking -- 121% more in the second quarter of 2008 than in the same quarter of last year, according to RealtyTrac.com -- you might be tempted to take advantage of some bargain-basement real estate. But if you are new to the real estate market, or even just new to the foreclosure market, there are a few things you need to know before you open up your checkbook.

Know the Foreclosure Process

There are three stages of foreclosure, and each requires a different buying strategy.

The first stage, "notice of default," occurs when the mortgage is 90 days delinquent, but before foreclosure has been declared. This means the owner is a motivated seller, and you have the opportunity to make an offer that benefits everyone -- the lender gets some money, the owner avoids foreclosure and you get a deal on a good home. However, you'll probably have to convince the bank or lender that it is in their best interest to settle for a loss on what they are owed.

The second stage is the notice of sale, where the house is put up for auction (called a sheriff's sale in some parts of the country).

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