Imagine if you made a loan to a friend - say five thousand dollars, and then a year or two later the friend says to you, "I can only pay back three thousand, let's just forget about the rest". That's a short sale. It's a sale in which the proceeds of the sale are less than what the seller owes on the property, and the seller has no other source of funds to pay off the mortgage. In this case, the seller intends to ask their bank to accept a short payment as payment in full, forgiving the unpaid amount of the debt. Banks are no more eager to do this than you would be, and it can take many weeks or months for the bank to respond to the request for short payment. In a short sale, the short-pay bank is not a principal in the transaction, but they have a significant amount of influence over the transaction. If there is more than on bank involved, as there often are when people have second or third mortgages, the process becomes more complex.
A foreclosure sale is one in which the seller was unable to make their mortgage payments and unable or unwilling to successfully negotiate a short sale. After a period of time, the bank essentially takes the property back from the seller through foreclosure and the bank becomes the owner of the property. In this case, banks typically want to sell the property to someone else, usually through normal channels, represented by a real estate agent and listing the property for sale on the MLS. In this case the bank is the owner of the property with the right to sell it, and they are a principal in the transaction. Typically a potential buyer will get a response to an offer on a foreclosed property within a few days.
Every market is different, but I would not recommend avoiding these types of sales, nor would I recommend seeking them out at the exclusion of regular sales which are neither short nor foreclosed. Buyers looking at short sales and foreclosures should understand the advantages and disadvantages of these types of sales - your best bet is to connect with a local Realtor who has experience with all types of transactions in your area. He or she will be an excellent resource for you and will be able to educate you and answer your questions about all types of real estate sales. If you are not sure where or how to connect with a local Realtor, check out ziprealty.com - you will find plenty of top Realtors in many major metropolitan areas who are easy to connect with and eager to help,
