Buzzword: Foreclosure Vulture

What it means. "One man gathers what another man spills," the Grateful Dead used to sing in "St. Stephen," from the group's 1969 album Aoxomoxoa. Foreclosure vultures apply similar thinking to real estate, scooping up properties at steep discounts after owners default on their mortgages and their homes are foreclosed. Some predators swoop in just before foreclosure is imposed, when desperate owners tend to be the most motivated.

Why the buzz? U.S. home foreclosures are occurring at a rate of one every 13 seconds, with 2.4 million expected in 2009, according to the Center for Responsible Lending, and some analysts forecast many times that in the next few years. Last week, President Barack Obama announced a $75 billion program to help struggling homeowners keep up with their stave off foreclosure, but the vultures will continue to bide their time, awaiting their prey.

Web sites like RealtyTrac.com, PropertyShark.com, and Foreclosure.com aggregate listings of thousands of seized properties nationwide, often with aerial images of the homes that allow foreclosure vultures to circle overhead—virtually, that is.

The term foreclosure vulture clearly has negative connotations and generates a sense of foreboding, but not all who buy foreclosed properties have nefarious intent. John Anderson, vice chairman of the Federal Housing Policy Committee for the National Association of Realtors and a licensed Realtor in Minneapolis/St. Paul, is working with many first-time home buyers looking to save by buying foreclosures or short sales. "There are some tremendous opportunities out there, with one caveat: It has to be the right buyer, the right house, and the right situation," he says.

"The best investments need the most work," says Anderson, so some buyers will have to sink a significant amount of money into the home they buy. That's why so many foreclosure vultures are investors with the cash on hand to make improvements.

"If you're a buyer who hasn't done this sort of thing before, as a Realtor I'm going to be careful to educate you about how much work and money it really takes to fix up a house," says Anderson, who blames home-improvement TV shows for creating the false impression that the makeover can all be done in a single, energetic weekend.

A thorough home inspection is absolutely essential, he says, since many properties sit vacant for extended periods or were not well maintained. And a savvy foreclosure vulture will check for a clean title, preferably at the beginning of the process. There could be liens on the property, unpaid water bills, or fees if the city had to board up the openings. Remember, the bank that owns the property will pass on any outstanding fees to the buyer.

Anderson's bottom line: "The word foreclosure doesn't automatically mean deal. You still need to look at the value of the property and compare it to the marketplace and the amount of work required."—Daniel DiClerico

Essential information: Use our advice to buy a foreclosed property and visit the real-estate section on ConsumerReports.org for more details on buying, selling, and remodeling a home. And for more information on mortgages, visit DefendYourDollars.org, like this blog published Consumers Union.