It looks like 2007 is going to be a very hot year for foreclosure sales, according to RealtyTrac.com, creator of the largest U.S.-based foreclosure database. The latest numbers released this week show that while foreclosures filed in December 2006 were 9 percent less than November, it was still up 35 percent December year over year.

"New foreclosure filings surpassed the 100,000 level for the fifth straight month, something we've not seen since we began issuing our foreclosure market report in January 2005," said James J. Saccacio, chief executive officer of RealtyTrac, in an online press release. "While the number of new foreclosure filings dropped back from the high point of 2006 in November, the combination of slower home sales and rising interest rates on adjustable mortgages continues to drive foreclosures at significantly higher numbers than a year ago."

For many an investor-wannabe, I can hear the sound of chops being licked in the background. The real estate business has been a great creator of wealth for many every-day people, but it's also created the demise of many a millionaire.

If you're looking to move toward investing in the foreclosure world, it goes without saying that you have some homework in front of you before collecting your rental checks or flipping the property.

When an investor is buying what I would call a retail investment property, the property is usually in good condition, the seller actually wants to sell the house and all parties will probably use traditional contracts from established sources, such as the local Realtor association. Such a situation creates a stable environment in which to buy a house that is going to continue increasing in value and where you may already have a tenant in the house.

When it comes to foreclosures, the ground under your feet is not as firm. It's almost like Frodo Baggins' of J.R.R. Tolkiens Lord of the Rings' quest to climb Mount Doom at the time that it's breaking up, and molten lava is pouring out, while Frodo is trying to destroy the dreaded One Ring (which holds the power of the Dark Lord Sauron). Okay - maybe it's not that life-or-death threatening, but almost.

Most times, the contract being used is from the seller (lender) and it's going to be written to the seller's favor. Understandably, the lender is trying to get out of the property without incurring any more financial damage. While they may be willing to incur some closing costs they're already taking a large financial drain and just want to get it off the books. Thus, be sure to hire an experienced foreclosure real estate agent or an attorney to look over your contract before signing the bottom line.

What does it require of the purchaser to perform as far as inspections, utilities, insurance, deadlines, etc.? Is it a boilerplate contract? If so, does it take into account local and state laws that are required, such as municipal disclosures, HOA documents, and property disclosure/disclaimer addenda (if your area requires it)?

I was looking over such a contract the other day and perusing the property. Obviously, this was foreclosure situation and it points out what a foreclosure investor needs to be willing to put up with (not in a bad way) when buying a house that's in disrepair and may have a cloudy title. The purchaser is dealing with a listing company in Virginia, a lender in Texas, a marketing firm in Alabama, closing agency in Pennsylvania and an asset management firm in Colorado -- thank God for the fax machine, cell phones, overnight service and email.

As you can see with the above involved parties, everyone wants this to happen quickly, so it's going to be very fast-paced. That's why the seller has a contract leaning his way so he can control all the aspects of the transaction and get it settled quickly.

On your end, have all your business partners lined up before you write the contract -- the settlement company (if you get a choice); financing; insurance for the house while it's vacant and being worked on; construction crew; cleaning crew; electrician/plumber/carpenters; flooring company; etc.

Once the lender/owner of record accepts your contract, you're going to need to move rather quickly to get the house fixed up and back on the market for either sale or rent. Your best offense is a real estate professional that has navigated such waters and can help you miss any pitfalls along the way.