hen an owner defaults on his mortgage and has exhausted all his legal remedies, the lender can foreclose and put the property up for auction. Property sold this way can be bought for 20 percent to 50 percent below market value. Yet few people even attempt to buy at auctions. The process seems mysterious and hazardous.

While auction buying takes know-how, if you understand the process and its pitfalls, you can get the house you've always wanted or a great investment property at a bargain basement price.

Here is a step-by-step guide to buying homes via the auction process:

The cashier's check is your ticket into the auction. Each participant must actually show a check, privately, to the auctioneer or they can't bid. Therefore, you'll need to have a cash reserve before you consider buying at an auction.

Either get a line of credit on your existing home, take a broker's loan against your securities or have a group of friends pool a few thousand each and authorize you to act for them. Once you own the property, you can get a mortgage from a traditional lender.

The amount needed varies from state-to-state, although most states will allow you to put down as little as 10 percent of the price. The auction house will then give you 10 days to come up with the financing. Otherwise, you'll forfeit part of that 10 percent as a holding fee, also known as "earnest money."

Auctions must be publicly announced and typically can be found in the local newspapers and in the legal press, such as The National Law Journal and your own state's law journal.

When you learn of a possible candidate, you must take immediate action. Visit the property and look from the outside. Trustees often won't allow you to inspect the property. That means all you can do is walk around the property like an amorous suitor and peek longingly into the windows.

Of course, you can and must know the neighborhood and the values of comparable properties. Simply check the multiple listings for properties that have already sold in the past six months and make your analysis. Comparable properties also can be found online at Experian. Get tax information from the assessor's office; it's public information.

Veteran auction buyers spend lots of time at this, evaluating 15 or more properties a month, or sending scouts to do so. If it looks like a good deal, put the auction date on your calendar.

About a week before the auction, call the trustee. His name will be in the advertisement. Ask if there is a postponement, and if the minimum bid amount has changed.

If the auction is going forward, get a title search. Since this costs money, do it at the last minute. A good company can get one out in a day. Eventually, you may learn to do your own searches, which involves checking the tax and register of deed listings at the local county courthouse. Read the mortgage documents that are on file in the county clerk's office where the property is located. Look for a "due on sale clause." If the foreclosing lender is a second mortgage holder, the first mortgage lender can come after you for payment, if there is such a clause.

If you still want the property, be prepared for delays. Most auctions are postponed at least once. It may happen just as you're about to bid. If an auction is postponed, it's possible that only the people at the first scheduled auction will be notified of the rescheduled event. Keep calling the trustee. He must tell you the time and place, by law.

You must be totally unemotional when bidding. Bidding goes quickly, with many auctions taking no more than four minutes to complete. Never bid more than your predetermined sum.

If you've made the winning bid, the trustee gets your check and you get a receipt. Take down the address, telephone number and even the driver's license number of the trustee, so you can track him down if the deed doesn't arrive in the mail in a few days.

Record the deed in the county clerk's office where the property is. You'll need to pay a transfer tax of between 0.1 percent to 3.5 percent, depending on the locality. Also, get insurance on your property. You may need to go to the "assigned risk pool" until the place is renovated. Insurers put certain types of property into these pools with other high-risk customers from other insurance companies. Essentially, the insurer's saying it wouldn't insure your property unless it receives higher premium payments and the risk is spread among several insurers.

Lien holders who realize they won't get paid with the auction's proceeds may try some after-auction litigation to overturn the foreclosure. The trustee pays the main lien holder, for example the mortgage lender, off first. If there are subordinate liens or creditors that looked to the property as security, their claims are paid off with what's left, if there is anything.

Some liens live on even after you've taken ownership. Any liens filed from the Internal Revenue Service must be paid if the IRS filed its claim at least 30 days before the auction. That means you can get stuck with the debt, even if it didn't show up in a search.

Other liens that can survive after an auction include any local or state tax liens.

To protect yourself, the title search, lien search and discussion with the trustee regarding IRS notification is essential. Make no mistake: If you buy the property, you take on the debt.

Moreover, the former owner may have a "right of redemption." Redemption rights allow the original owner anywhere from 30 to 90 days to come up with the needed funds to pay off his or her debts. If so, the owner can reclaim the property and repay you for your costs, along with a small amount of interest. Don't improve the property until the right has expired. Further, if the IRS has a lien that was supposedly dismissed at the auction, it has 120 days after you buy to try and take back the property to recover its losses. All you get is your purchase price back with 6 percent interest.

If you buy at auction and resell the property quickly, the IRS may declare that you're a dealer. Dealers pay ordinary income tax on gains. They don't get the lower taxes offered by capital gains treatment, and they can't depreciate the property.

As a result, active auction buyers use a tax device called the tax-deferred exchange. They buy a property and exchange it in escrow for another property they're about to sell. This saves tax on the profit from the about-to-be-sold property. If you get really serious about auction buying, work with a lawyer or service that structures such exchanges.