You’ve probably seen the ads: Investors in expensive suits boasting about the easy money they’ve made snapping up foreclosure bargains. But truth be told, buying a foreclosure property is neither easy nor a guaranteed bargain.

Sure, with the number of foreclosures surging, it’s possible to find a distressed home selling at a discount to those around it. But often there are pitfalls surrounding these abandoned homes that buyers should be aware of.

“By the time you get them fixed up, in some cases you have paid more than retail (or market value),” says Washington, D.C., real-estate investor Lance Young, who has authored a series of books on buying foreclosures for real-estate data firm RealtyTrac. (RealtyTrac is a partner of MSN Real Estate.)

To effectively shop for a foreclosure home, says Los Angeles real-estate attorney Laurence R. Clarke, you need to understand the foreclosure process, the risks and the timing necessary to close the deal.

It also doesn’t hurt to have some help from a seasoned agent who has handled a lot of bank-owned sales as a buyer’s representative. But be wary of anyone who claims to know too much about what lenders will accept and when, Young says.

“This market is so crazy I would be cautious of anyone who says they know where the market is going,” he says.

The foreclosure process
Let’s start with a basic definition of foreclosure, how it works and how long it takes.

The foreclosure process is a means by which a bank can recover the amount owed on a defaulted loan, by repossessing the property that secured the loan.

The average foreclosure starts when a homeowner misses a mortgage payment and the lender files a notice of default. This is a public record and can be a first step for buyers in finding distressed properties, says Alexis McGee, co-founder of and author of “The Guide to Advanced Investing Techniques You Won’t Learn Anywhere Else.”

If the property owner doesn’t pay the owed amount in 60 to 90 days (or whatever timeline is dictated by the state you live in), a public auction notice is generally recorded that sets a sale date for the home.

If the property doesn’t sell at auction, the lender takes ownership of the property with the intent to sell it and recover its money. These bank-owned homes are often referred to as REO properties, a term that stands for “real-estate-owned.”

However, the foreclosure process differs widely from state to state. States with so-called judicial foreclosure laws require banks to go to court or file a lawsuit to repossess a home. This initial filing is called a “lis pendens,” meaning “suit is pending.”

Nonjudicial states do not require this. The deed of trust signed by buyers typically includes a power-of-sale clause, authorizing a trustee to sell the real estate to pay off the debt if it’s in default. The notice of default kicks off this process.

It’s important to be familiar with what the laws are in your state before embarking on your search, as they can affect the amount of risk you must shoulder and the timing for buying a foreclosed property, McGee says.

A foreclosure in a judicial state such as New York can take more than12 months, while one in Texas can take as little as 60 days, she says. You can find more information about the laws in your state here.

Now that you know the process, let’s move on to your options in buying distressed properties, and the risks and rewards of each.