More home foreclosures have spawned a hot alternative real estate market in Dane County.

Bargains can be found, but buyers should be prepared for pet odors, dirty carpets, ripped-out appliances and personal items left behind.

If a bank owns the home, it can delay closings, take time to mull an offer and dictate some terms.

But buyers have found that a foreclosed home can provide a better home at a lower price than they could otherwise afford. Despite slow home sales overall, some foreclosed homes are attracting multiple offers.

"A place like this is an empty canvas," said Evan Oie, who bought a foreclosed Oregon home last spring with fiancee Deidre Thompson. "If you've really got a good structure, you can fix anything else."

Foreclosures in Dane County hit a record high in October with 152 new filings, according to DaneCountyMarket.com, a Web site that tracks the local real estate market. The 1,082 new filings through the first 10 months of 2008 were up 47 percent from a year ago.

A foreclosure home can be sold at three stages of the process:

• Pre-foreclosure: The lender hasn't yet filed a foreclosure action in court, but the homeowner faces financial problems and may have missed payments. These are called short sales because the homeowner often will accept less to avoid a foreclosure.

• Foreclosure: After the foreclosure action is filed, the homeowner has a redemption period usually of six months to redeem the property by paying the entire amount due. Short sales also can occur during this period with the cooperation of the homeowner and the lender. The final foreclosure step is a sheriff's auction, where the home is sold to the highest bidder.

• Post-foreclosure: In many cases, the bank or lender is the highest bidder at the sheriff's auction. The lender then will try to sell the property as what's called an REO (Real Estate Owned) property.

Buying a foreclosed home at sheriff's auction is the riskiest kind of purchase, said Peter Zarov, owner of Homestead Title Co. of Madison.

"You don't get to do an inspection and it's possible the former owner has destroyed the place," he said.

Zarov said another lender also can come forward after the auction and make a claim on the property if they weren't named in the foreclosure action. Buying title insurance provides protection against undisclosed liens, he said.

A foreclosure also may involve federal tax liens that the Internal Revenue Service can try to redeem long after the sale, Zarov said.

Short sales are attractive to homeowners facing foreclosure because they can avoid stigma on their credit record, said Guy Lofts, a Keller Williams agent who specializes in working with sellers.

"They've lost a job, are trying to keep their mortgage and have used up all their savings," he said. "They're coming to me and saying they just want to get rid of it and feel so ashamed."

Lofts said he's worked on about a half-dozen short sales over the past few months.

Home buyers should search by price range instead of limiting their search to foreclosures, said Keller Williams agent Matt Costello. He recommended avoiding specialized foreclosure listings on the Internet, which can be out of date.

"You can get deals," he said, adding that some foreclosed homes are in very poor condition. "I've seen microwaves ripped off the wall, dishwashers ripped out, or what you find is they've had pets with urine-stained carpet."

'Very challenging process'

The Trimble family of Huntley, Ill., last week completed the purchase of a foreclosed home in Stoughton that they bought from a bank. They moved to the area after Andy Trimble took a job with the state Department of Transportation.

"It was a very challenging process to go through with these folks," said Paul Lawrence, a Coldwell Banker agent who worked with the Trimbles. "They were literally homeless for two to three weeks while the bank decided whether to authorize a short sale."

Bette Trimble said her family, including her 9-year-old daughter, stayed at a friend's home in Delavan while awaiting the bank's decision. Now, they're replacing carpeting due to pet odors and making cosmetic repairs at their new home.

She estimated the family saved $20,000 or more on the four-bedroom home, which they bought for $205,000. She said buyers of foreclosed homes need patience and to look beyond a home's appearance.

Four offers

Kong Perales began shopping for a home in the Madison area this fall while her husband Gilbert, a U.S. Marine, was still serving in Iraq. He now works at the Walgreen's Distribution Center in DeForest.

In mid-October, the couple, who have a 10-year-old daughter and a 2-year-old son, bought a foreclosed home in DeForest for $225,500, which was $63,500 less than a comparable home down the street that sold two weeks later.

"I was checking the MLS every day," Kong Perales said. "I looked at it the day it came out. Even doing that, somebody already had put in an offer."

Another foreclosed home in the town of Windsor she looked at had four offers, she said.

Unlike the more expensive home down the street, the previous occupants of the Perales home had ripped out speakers installed in the ceiling.

Making up a loss

Clark Bretthauer, associate principal at Edgerton High School, wanted to move to McFarland this year to be close to his 7-year-old son. He and his ex-wife share joint custody.

He put his Edgerton house up for sale shortly after General Motors announced it planned to end production at the Janesville assembly plant.

Bretthauer sold the Edgerton house for $185,000, which he estimates was about $25,000 less than its value.

But the 3-year-old foreclosed home he bought in McFarland for $215,000 was appraised at $259,000.

"I thought I got a really good deal, and I made up the money I lost in Edgerton," Bretthauer said.

Saved 10 percent

Oie said he and his fiancee began looking for a home last January after moving to the Madison area from St. Charles, Ill., due to a job relocation. They weren't afraid of a house that needed repairs because of Oie's home remodeling skills.

He estimated they saved up to 10 percent when they bought the $209,000 home in May.

"It's exactly what we wanted," he said. "It was the difference between us buying a starter home or one we could keep as long as we want."