The good news is that the latest statistics show foreclosure activity has been low as a result of strong home sales and good appreciation rates. According to DataQuick, a real estate information service, foreclosure activity is usually low when appreciation rates are strong, because the increase in equity means that if homeowners get into financial trouble they can sell, pay off what they owe and walk away with the difference. However, when appreciation rates level off, foreclosure rates are likely to increase.

Compared to what homeowners experienced in the mid-1990s, more homeowners who find themselves in default are able to stop the foreclosure process by bringing their mortgage payments current or by selling their home and paying the mortgage off.

Realtor David Tonna of Windermere Silicon Valley Properties in Los Gatos shared his experience about listing a number of foreclosures for a lender in the mid-'90s.

"They never turned out to be any more than a perception of a good deal. They were all in very poor condition, with the lender pricing at the repaired value. They played hardball when negotiating, then sold as-is. In one case the buyer had to bring in sinks, cabinets, outlets, switches, toilets, faucets, etc., in order for the appraiser and underwriter to recognize the property as livable," Tonna said.

When buyers ask him to find a foreclosure, Tonna recounts his stories and mentions that the properties usually end up on the multiple listing service unless sold at the courthouse steps.

Foreclosures can be alluring, and sometimes there are good foreclosure deals to be had, said Stefan Walker of Alain Pinel Realtors in Los Gatos. However, he advises those who contemplate buying a foreclosed property know what they are up against.

"You must have a lot of capital behind you. Foreclosure sales do not allow any contingencies, so you must demonstrate on the court steps that you have the backing necessary to purchase a particular property. For instance, if you are the high bid at $400,000, you must have a cashier's check for $400,000 in your hand at that moment. If the high bid is $401,000, you will be out of luck unless you have the additional cash in your pocket."

The foreclosure process is very competitive, and Walker finds that there are usually many bidders for the properties that are actually going to auction. Most of these bidders are very seasoned in dealing with foreclosure properties.

"You can't just show up at the court steps and bid on a property. The notices published in the paper are of little value, as a listed bid date does not always mean anything. Auctions are continually delayed, sometimes for days, weeks or months. You need to be at each auction, usually two a day, to really have a handle on what will be on the block and when," Walker said.

There are a number of newsletters that are published, available for a fee, that provide up-to-date information. However, Walker cautions the novice to remember that most people who bid on foreclosed properties do nothing else and consider it their career. Walker also advises those interested in foreclosure properties to find out as much about the property as possible before bidding.

"You need to be educated on each property. In the heat of an auction, it can be tempting to keep bidding on something until you get it. You need to know up front where each property's value is capped so you don't overpay," Walker said. "The barriers to entry are substantial, but well worth the effort for some, as there are definitely opportunities in foreclosed properties. If you have a nine-to-five job, this is not for you unless you work next door to the courthouse."

Dennis Byron and his partner, Susan Silver, of Silver Byron Group in Los Gatos have handled several successful foreclosure transactions. They recently circumvented the foreclosure process through a negotiation that allowed the owner to walk away without a foreclosure on his record and the buyer to get the house at a reasonable price.

"This kind of transaction is not for the faint of heart. Banks will generally not deal with the debtor but only with a third party who understands the nuances. To deal in the foreclosure market, you must first have the ability to act quickly and have all cash. The idea of going to the courthouse steps and finding a deal is rare. By the time a property gets that far, it is too late," Byron said.

Byron believes there is a reason a property won't sell on the open market, and generally it is because it is in poor condition or overpriced. "The person who bids at the courthouse steps had better know what he is getting into. If you think you are getting a bargain, think again. Why did it get here and do you want to be the next in line to inherit the problems created by the former owner?" he asked.

Mickey Shaevitz, a Realtor with Coldwell Banker in Los Altos, handled a foreclosure last year that received multiple offers. She described the experience as sad, though found it interesting to work with the bank and to sell property from a different viewpoint.

"The strange thing about it was that there was equity in the property, so it was a pretty sad situation. My advice to people is to talk to a real estate professional. Maybe this couple did not know there was equity in their property. In this case, they would have been better off financially when all was said and done if they had discussed the options with a Realtor," Shaevitz said.