Many people have been asking lately about foreclosures and short sale properties. From these conversations, it's become clear to me that there is a lot of confusion about these two vastly different transactions.
A quick and simple way to distinguish the two is to think about "foreclosures" (often referred to as "bank-owned" or REO properties) as those properties that are now owned by the lender (REO is bank jargon for "real estate owned"). A "short sale" is an alternative to foreclosure.
A "short sale" property is still owned by the borrower/homeowner but will require a lender's approval before it can be sold, since the borrower/homeowner will not clear enough from the sale to pay off the outstanding loan amount. The following link does an excellent job of describing the challenges involved with short selling a property.
http://online.wsj.com/article/SB120839380851021529.html?mod=residential_real_estate
Keep in mind that as a buyer, you stand a much better chance (not to mention a much faster and easier process) finding a "bargain" by purchasing a "foreclosure" versus a "short sale."
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