Foreclosurs vs Bank-Owned vs Short Sale Home Buying - What's the Difference ?

I am frequently asked by prospective buyers to explain the difference among foreclosures, bank-owned homes and short sales,  I'll try to define briefly the differences and why none of these home buying options is necessarily a smart move for an uninformed buyer to take without the assistance of a qualified Realtor

Foreclosure Properties - Foreclosure auctions, held usually in a location open to the public begin with a minimum bid that includes the loan balance, any accrued interest and attorney's fees and any costs associated with the foreclosure process. itself.  To bid at a foreclosure auction, as prospective buyer must have in-hand a cashier's check for the full amount of their bid.  If you are the successful bidder, you will receive the property in "as is" condition, which may include someone still residing in the property. There may also be other liens against the property. Since what is owed to the mortgage holder is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale at auction.  At that point, the property "reverts" to the bank or mortgage holder.  It becomes what is known as an REO, or "real estate owned, "bank-owned" property.

Bank Owned Properties then, are properties that have already gone through the mortgage foreclosure process without a successful bid being received ans are, therefore, owned solely by the bank or other mortgage holder.   The mortgage holder will be responsible for eviocting the residents if they are still in the home. They may or may not do any repairs to the property. Most often, they will  want to sell the property "as is" although that may be negotiable. The bank will also negotiate with the appropriate aauthorities to remove any tax liens and pay off any homeowner's association fees that are due. As the buyer of a bank-owned property, the buyer will receive a title insurance policy and the opportunity to investigate the property.  The buyer's offer will be countered by the bank and it is typical for the buyer to re-counter that counteroffer. 

Short Sales Properties are those that are still legally owned by the homeowner but the property is being listed for sale at a price that is less than the amount owed on the mortgage.  Since both the seller and the mortgage holder are involved, once the seller accepts an offer, it must be submitted to the mortgage holder, who will frequently attempt to get a higher price before the deal can be consummated. This process involves negotiation with the mortgage holder to release the property.  A property offered as a short sale may or may not already be in the foreclosure process. Short sale properties are generally sold "as is" with no allowance for inspections. The buyer may do any inspections he or she wish at their own expense but it is unlikely that the bank will agree to cover the cost of any deficiencies found during the inspections.

If the bank believes it can receive a higher price by taking the property through the foreclosure process rasther than a short sale, they will hold out for a higher price closer to the property's market value. Lenders accept short sales only when the price of the home is real close to its market value.  It is generally not the case that a buyer gets a significantly better deal on a short sale than on a typical purchase transaction, And, this process can take 90 - 120 days or even more.

In summary, one can see that none of these processes is a "clean" and neat" way to purchase a home. Doing so requires the assistance on competent professional assistance unless your whole business is dealing with such properties.  While there are people who do this for a living and make a good livi9ng at it, it is not for the uninitiated.