1. Have you done your research?
A foreclosed property may have all sorts of clouds on its title, from multiple bank loans to tax and contractor's liens. Once you buy, you're responsible for all such balances. Be especially wary of the situation where one bank forecloses, but another still demands to be paid.

2. How far has the process gone?
If the foreclosure hasn't happened yet, it's often possible to contact the owners and arrange a pre-foreclosure sale, which can benefit both parties. The next step is the foreclosure auction, where the greatest risks and rewards are found. Finally, it's possible to buy post-auction properties from the bank. These are usually spruced up, but they're priced higher as a result.

3. What is the condition of the property?
When buying at auction, you're usually not allowed to tour the home. Even in the other two situations, you usually buy "as is." Always assume you're buying the value of the land and basic structures, and discount everything else. Disgruntled homeowners have been known to strip cabinets and appliances and pour concrete down the drains. If you're able to get into the property, hire a thorough home inspection before making a bid.

4. Will you have to evict?
If the property is occupied, getting the former owners out is your problem. An unoccupied property is often a better bet. If a formal eviction is necessary, be sure you take the cost into account.

5. Can you get a loan?
Keep in mind banks are often unwilling to loan money on properties in poor condition. Moreover, auctions usually require you to show up with cash in hand. Given extra repair costs and other possible surprises, foreclosure purchases require an ample cash cushion.

Foreclosures can be a great deal, but they are best pursued by those with a tolerance for hassles, knowledge of the game, and an ample checkbook. If that's not you, a non-distressed home sale or a short sale is a better option.