Should you buy a foreclosure?

You've got more competition than ever. Once a homeowner receives a notice of default, the foreclosure process is public. Some homeowners report being contacted by as many as 65 people offering to "help" during the pre-foreclosure period. At an auction, it's no better. You register and get a bidder's card or paddle, but so do as many as 2,000 other people. "People think, 'If I get a foreclosure, I'll be the only one,'" says Larry Loftis, the author of "Successful Real Estate Investing in a Boom or Bust Market." You could skip auctions and look for REOs, or real-estate-owned properties, where the bank has already foreclosed and owns the home. But those are put on the Multiple Listing Service rolls along with every other property. There's really no way to get around the competition.

Some pre-foreclosure tactics are sleazy. There's a whole seminar market that teaches you how to find people who are about to lose their homes and pretend to be their white knight. The seminars teach you to pitch that, yes, Aunt Martha will lose the property, but she'll save her credit. You use complicated contracts and high-pressure and scare tactics, and misrepresent what the homes are worth. What you're hoping is that Aunt Martha has about 60 grand in equity. You take over her property, her loan -- and her equity. Loftis says, "It's deceitful and unethical, but that's what they teach."

If you're thinking of buying a foreclosure or pre-foreclosure for your own residence, do your research, avoid occupied houses and never buy sight unseen, it could be worth the trouble. Georg Finder, an independent credit evaluator in Fullerton, Calif., bought a fixer-upper that way. He paid about half as much for his house as his neighbors had paid for theirs, and he used some of the savings to make cosmetic fixes. For Finder, the positives outweighed the negatives. He still lives there, 20 years later.

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Should you buy a foreclosure?

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