We know the thoughts are swirling around in your head...3 bed, 2 bath, picket fence, garage...oh and very cheap. Well it's official, you've been bitten by the homeownership bug and believe it's a perfect time to jump into the market. Your friends are bragging about the incredible deal they received, but where do you find the perfect, (affordable) home?

What is Foreclosure?
Foreclosure is a legal process whereby a lender terminates a borrower's right to redeem a property, generally because the borrower is unable to continue paying on the mortgage. Once the foreclosure process is complete, the lender can sell the property to repay the mortgage.

If you're considering buying a foreclosed property, keep in mind that there are many pitfalls to watch out for, and laws vary from state to state. You'll absolutely want to work with an experienced mentor, real estate attorney, or other trustworthy professional.

The Three Stages of Foreclosure
Depending on state law, foreclosure can be a relatively short or lengthy process. You might be able to buy a property in pre-foreclosure, at a foreclosure auction, or (if it didn't sell at auction) in the real estate owned (REO) phase.

1. Pre-Foreclosures
In order to identify properties that are in a pre-foreclosure status, you'll need to locate loans that are in default. To do this, you may need to spend time in the courthouse researching foreclosure filings or subscribe to an online foreclosure reporting service that will do this for you. Once you find a property you're interested in, you'll need a title search performed to determine what liens are against the property, and you'll need to contact the owner to negotiate a purchase. You'll also need to have the property inspected (it may need some repair work) and then determine its market value. In making an offer on the property, consider the cost of paying off liens, repairing the property, and any other fees you'll need to pay (such as those associated with securing financing to make the purchase).

This option requires a lot of legwork on your part and (preferably) the services of others experienced in the process. Contacting an owner (especially one who hasn't listed the property for sale) can be difficult and stressful. However, pre-foreclosure sales may require minimum down payments, and you may be able to acquire a property at a good discount off its market value.

2. Auction Sales
Once the foreclosure process is complete, the foreclosing lender (usually the holder of the first mortgage) may attempt to sell the property at auction--a fast-moving, public proceeding. Before you buy, you should have the title researched just as you would when making a pre-foreclosure offer. On the downside, you may not be allowed to have the property inspected beforehand (which precludes the possibility of obtaining a mortgage to purchase it), so you'll be buying it "as is" and may not know all of what that entails. If you're the successful bidder, you'll need to make at least the required minimum down payment in cash (or with a certified check) on the spot and pay or finance the balance within 30 days, sometimes sooner.

Because you can't always inspect the property beforehand and arrange financing, and because you must buy it "as is," buying a property at auction can be very risky. However, you can receive a substantial discount off the market value of a property.

3. Real Estate Owned (REO) Properties
If a foreclosed property doesn't sell at auction, the foreclosing lender takes possession of it. As a result, junior liens (such as second mortgages or home equity lines of credit) that may have encumbered the property's title are discharged, and any taxes owed are paid. Any occupants remaining in the property are evicted, and the property is usually listed with a real estate agent.

At that point, the property becomes available for inspection. You may be buying an REO "as is," but you'll be able to find out what that means, and can adjust your purchase offer accordingly. While the lender holding the REO will try to get as much as possible for the property, it may consider discounts off market value in order to get the property off its books.

Purchasing an REO is probably the least risky way to buy a foreclosed property. You have time to arrange financing, and you may be able to obtain some discount off the property's market value. However, the discount off market value will generally not be as substantial as with the other options for buying foreclosed property, and working with the bank can be a lengthy process.

Over the past few days, we've been inundated by clients and website visitors with the same question:

"If my financial institution goes bankrupt, will I lose the assets in my checking, savings, certificate of deposit (CD), brokerage, 401k, or Individual Retirement Account (IRA)?"

In a single word: No.

National news outlets have done a superb job scaring the pants off of main street by reporting on the financial woes of Wall Street. Here's a recap of the players if you're scoring at home:

• Washington Mutual
• Merrill Lynch
• Bear Stearns
• Morgan Stanley
• Freddie Mac
• Fannie Mae
• American International Group
• IndyMac
• Lehman Brothers
• ...and more to come

But we sure wish these same news organizations would do the general public a great service by educating you on the federal consumer protections which exist to protect against your loss of bank deposits and investment assets.

Understand Your Federal Protections
As for bank deposits such as checking accounts, savings accounts, and CDs, your assets are protected (up to $100,000 per bank) by the Federal Deposit Insurance Corporation, often referred to as the FDIC. This means, if your bank goes under, the FDIC will step in and replace every dime you held in deposits at that bank within a matter of days, up to the $100k limit.

Rest assured in knowing that no consumer in U.S. history has ever lost money that was on deposit in an FDIC insured institution. But how do you know if your bank has FDIC insurance coverage? Surf over to the FDIC's nifty online tool and find out asap. If your bank is not listed, then move your cash into an institution that is!

Will a Market Meltdown Liquify My Portfolio?
When discussing the stock market, there are two distinct concerns here:

1. The market value of the stocks, bonds, and mutual funds in your portfolio
2. The solvency of the custodial institution at which your portfolio is held

As for the first point, no government-based consumer protections exist to guard against the decline in the value of the securities you hold inside of a 401k, brokerage, or Individual Retirement Account. Similarly, no federal laws protect consumers against investment fraud; however, investment brokers such as Charles Schwab and E*Trade have rightly enacted these anti-fraud security measures themselves.

On the other hand, if your accounts are all held at MEGA Brokerage (fictional) and MEGA Brokerage itself declares bankruptcy, then yes your assets are protected against total loss by the federal government and its Securities Investment Protection Corporation, or SIPC. Note that the SIPC also has limits: $500,000 in stocks, bonds, and mutual funds, and $100,000 for brokerage cash.

No Time to Relax
Please read the above four words carefully. They do not say "panic"...far from it in fact, these are the times for a heightened sense of awareness, to pay closer attention to bank account statements, and stay tuned in to your favorite news outlets. We're embarking on a prolonged period of national economic turmoil, and as a financial professional, I advise everyone to remain prudent and patient.

Ask your five-year old where money comes from, and the answer you'll probably get is "From a machine!" Even though children don't always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely. As we stress with our five Keys to SHINE™, it is critical to give your child a solid foundation for a lifetime of informed financial decisions.

Lesson 1: Learn to Handle an Allowance
An allowance is often a child's first brush with financial independence. With allowance money in hand, your child can begin saving and budgeting for the things he or she wants.

It's up to you to decide how much to give your child based on your values and family budget, but a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of age. To come up with the right amount, you might also want to consider what your child will need to pay for out of his or her allowance, and how much of it will go into savings.

Some parents ask their child to earn an allowance by doing chores around the house, while others give their child an allowance with no strings attached. If you're not sure which approach is better, you might want to compromise. Pay your child a small allowance, and then give him or her the chance to earn extra money by doing chores that fall outside of his or her normal household responsibilities.

If you decide to give your child an allowance, here are some things to keep in mind:

• Set some parameters. Sit down and talk to your child about the types of purchases you expect him or her to make, and how much of the allowance should go towards savings.
• tick to a regular schedule. Give your child the same amount of money on the same day each week.
• Consider giving an allowance "raise" to reward your child for handling his or her allowance well.
  

Lesson 2: Open a Bank Account
Taking your child to the bank to open an account is a simple way to introduce the concept of saving money. Your child will learn how savings accounts work, and will enjoy trips to the bank to make deposits.

Many banks have programs that provide activities and incentives designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

• Help your child understand how interest compounds by showing him or her how much "free money" has been earned on deposits.
• Offer to match whatever your child saves towards a long-term goal.
• Let your child take a few dollars out of the account occasionally. Young children who see money going into the account but never coming out may quickly lose interest in saving.
  

Lesson 3: Set and Save for Financial Goals
When your children get money from relatives, you want them to save it for college, but they'd rather spend it now. Let's face it: children don't always see the value of putting money away for the future. So how can you get your child excited about setting and saving for financial goals? Here are a few ideas:

• Let your child set his or her own goals (within reason). This will give your child some incentive to save.
• Encourage your child to divide his or her money up. For instance, your child might want to save some of it towards a long-term goal, share some of it with a charity, and spend some of it right away.
• Write down each goal, and the amount that must be saved each day, week, or month to reach it. This will help your child learn the difference between short-term and long-term goals.
• Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a young child make the connection between setting a goal and saving for it.

Finally, don't expect a young child to set long-term goals. Young children may lose interest in goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it up to experience. Over time, your child will learn to become a more disciplined saver.

Lesson 4: Become a Smart Consumer
Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but aren't born with the ability to spend it wisely. Your child needs guidance from you to make good buying decisions. Here are a few things you can do to help your child become a smart consumer:

• Set aside one day a month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying something on impulse.
• Just say no. You can teach your child to think carefully about purchases by explaining that you will not buy him or her something every time you go shopping. Instead, suggest that your child try items out in the store, then put them on a birthday or holiday wish list.
• Show your child how to compare items based on price and quality. For instance, when you go grocery shopping, teach him or her to find the prices on the items or on the shelves, and explain why you're choosing to buy one brand rather than another.
• Let your child make mistakes. If the toy your child insists on buying breaks, or turns out to be less fun than it looked on the commercials, eventually your child will learn to make good choices even when you're not there to give advice.