You may have the guts to foreclosed houses in this type of economy that we have now. However, guts alone are not enough to shield you from the risks that distressed real estate may have and a little education and research goes a long way. It is one thing to be burned by a bad deal, but it is a whole different thing if you endanger your life’s savings or credit score by making a bad decision.

Is it safe to buy foreclosed houses? Yes it is, despite the recent scandal involving banks that were accused of having "robo-signers", that is, bank officers that just signed foreclosure papers without really studying them. This caused a major uproar, making banks halt their foreclosure proceedings, and leaving homebuyers with dodgy titles.

That is why you have to understand first what kind of foreclosed houses that you are eyeing.

Kinds of foreclosures

There are many ways how foreclosed houses come to the market. One way of acquiring a distressed property is through pre-foreclosure. That is, the home owner may have decided to sell the house before foreclosure proceedings begin. The proceeds for the sale may be used to pay for the mortgage in default and any excess, if there are, can be used by the homeowner for other purposes. This way, the original homeowner’s credit rating can remain intact.

In the foreclosure stage, the home may be listed as under pending loans in default. You can inquire about this through the county clerk’s office. The foreclosure process may vary from state to state and whether the foreclosure is the judicial or non-judicial kind.

The last way that a distressed house can be acquired is when it is already in the post foreclosure stage. This way, the lender or the government has already acquired, with the help of a court order, the right to foreclose the property. Foreclosed houses are then listed for public auction or for over the counter sale.

To make the process of buying foreclosed houses less murky, it is better to engage the services of a local realtor to see whether it is worth your while. It also does not hurt to ask the advice of lawyers, especially in the case of judicial foreclosures and tax lien foreclosures.