When prices are rapidly accelerating during a real estate "bonanza," many people go to any lengths available to get into the market through investments in vacation homes, rental housing and "trading up" to more expensive properties. In some cases, homeowners acquire high-interest-rate payments and second, third and even fourth deeds of trust.

Sometimes, home buyers anticipate that interest rates will drop and home prices will continue to escalate. If neither occurs, those who gambled on future rates declining can be faced with large "balloon" payments coming due. When those payments can't be met, the foreclosure process looms on the horizon.

One important thing should be kept in mind about foreclosure: As a general rule, a lender would rather receive payments than receive a home in foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems.

The best way to approach a strained financial situation is to contact the mortgage lender before getting behind on payments. If monthly payments are too hefty, it may be that a lender will be able to make some alternative payment arrangements until the financial situation improves.

Let's say, however, that a property owner has missed some payments and has not made any alternate arrangements with the lender. In this case, a lender may decide to begin the foreclosure process.

Most lenders in Oregon take advantage of a non-judicial method of foreclosure referred to as advertisement and sale. In this process, a trustee who was appointed at the time the loan was made (usually a title company), receives instructions from the lender notifying of the default and instructing the trustee to foreclose on the property. The trustee, in turn, files a notice of default with the recorder in the county where the property is located. A copy of the notice is mailed to the property owner.

If a default is due to a balloon payment not being made when due, a lender can require full payment on the entire outstanding loan as the only way to cure the default. However, failing to make payments when due is only one of several ways to default on a home loan.

A default occurs whenever a borrower fails to adhere to the provisions of his deed of trust, which is a contract that secures the loan, using the home as collateral. Some acts that would violate typical trust deed provisions and could result in a lender declaring a borrower in default are:

• Making false statements on the loan application for the property;
• Failing to pay late charges that accrue;
• Failing to keep the property free of certain liens;
• Not maintaining the property in satisfactory condition;
• Storage of hazardous substances on the property;
• Transfer of the property or an interest in the property to another party.

Once a borrower is notified that he or she is in default, the problem causing the default must be eliminated or cured. If the default is not cured, the lender may direct the trustee to sell the property at a public sale.

In cases of a public sale, a notice of sale must be sent by certified mail to the borrower, to the current occupants of the property, to other recorded lien holders, to the Oregon Department of Revenue, and to anyone else with a recorded request for notification. The notice must set a date for the sale that is not sooner than 120 days from the date of the notice, and must be advertised in a local newspaper once a week for four weeks.

After a notice of sale has been recorded, a borrower has until five days before the sale date to cure the problem that caused the default. If the borrower "cures the default," for example by bringing his payments current, or by removing the hazardous waste from his property, then the deed of trust is reinstated and regular monthly payments resume as before.

During the five days before the scheduled date of the sale, it may still be possible for a property owner to work out a postponement of the sale with the lender. However, if no postponement is reached, the property goes up for auction at the county courthouse.

At a foreclosure sale, also often referred to as a trustee's sale or sheriff's sale, those who successfully bid to purchase the property must pay the amount of their bid in cash, cashier's check or other secure form of payment acceptable to the trustee. A lender may "credit bid" up to the amount of the obligation secured by the property.

Some real estate investors believe that buying foreclosed properties is an excellent way to produce large returns in the real estate market. While this can be true, using foreclosed properties as an investment vehicle carries a substantial amount of risk, especially for the inexperienced. In this arena, the old Latin saying "caveat emptor" (buyer beware) really holds true.

Foreclosed properties are likely to be burdened with overdue taxes, liens and clouded titles. Buyers in this segment of the market must do their homework, and should consult a local title company or an expert in property foreclosures, such as an attorney or real estate broker, in order to get advice about dealing with the risks involved.

Title insurance, which protects a buyer's interest in a property being purchased, is often of questionable value or not available at all for buyers of foreclosed properties. When title insurance is available, exceptions to coverage are so numerous that the protection provided is minimal.