FORECLOSURES:

Also known as REO's (Real Estate Owned - by the bank). 

When a lending institution forecloses on a property - that is takes ownership of it back from the borrower - it will first send it to a trustee sale/public auction.  Surprisingly, only a small percentage of those properties are actually sold at auction - particularly in Mesa County.  That's because the banks tend to establish the minimum auction price at the loan amount.  Not too many buyers at that level because usually the home is worth less than the loan amount.  Once it clears auction, the property will come back to the MLS as a more-or-less normal listing.  Certainly more normal than a short-sale. 

The difference between an REO and a conventional sale is that, in addition to the standard statewide real estate contract, the lending institution will send along an addendum to the sales contract.  I've seen them range from 5 to 18 pages long. The addenda tend to take away rights that the buyer would have according to the standard contract.  For starters, the buyer will need to sign an "As Is" adddendum.  When the home inspection reports various parts of the house in need of repair, the bank insists that it will not make any.  The buyers options are to either take responsibility for the repairs or just cancel the contract.

The bank also often reserves the right to cancel the contract at any point before Close of Escrow and take another offer.

SHORT-SALES

A short-sale is a pre-foreclosure situation in which the lender agrees to accept a price/loan pay-off that is below the current loan amount - essentially to keep it from going to foreclosure.
 
We always need to verify that the lender has indeed authorized it before making an offer. Many properties are listed as short sales before the sellers have jumped through all the hoops and restrictions, only to find that they don’t qualify.

It’s possible for a buyer to snag a very good deal via a short-sale, but I have to warn you that the whole process tends to be exceedingly slow and frustrating without much assurance that you’ll actually end up with the property. Estimates are that 90% of short-sales never go through. The lender or servicing company will accept an offer on a property and then sit and wait to see if any better ones are coming in before giving its final approval. The time-lag for that has increased from a couple of weeks to several months or more. Until that happens there's no contract. In many cases the lender will simply reject the offer. Absurdly enough, if the buyer wishes to up the offer, the new offer goes back to the bottom of the pile and the waiting game begins again.  The national average for the initial bank response is three months.

Up to a couple of years ago nobody had ever heard of them in reference to real estate (they have no resemblance to stock short-sales). Now they're getting more common. 
 
Basically the seller is upside down with his loan. That is, the loan amount exceeds the market value of the property. But, he still owns and often still lives in the house because the bank hasn't foreclosed, yet.
 
Like REO's, the other consideration is that the property is always sold, "AS IS" so you're not going to get anything in the way of seller concessions or repairs. .
 
Some people focus on finding them exclusively, along with foreclosures, because a buyer can wind up with an excellent deal. But, that can be a mistake because many of them come with major issues - made worse by neglect. Plus, the whole process of dealing with a lender's over-burdened bureaucracy (sometimes out-sourced overseas) that often doesn't seem to care whether or not the transaction ever happens is frequently, as I mentioned, very frustrating for everyone involved.

Or, the seller can inadvertently blow up the whole transaction by declaring bankruptcy at some point during the process. In that case, the contract is canceled and the property put in the hands of the courts. All sorts of pitfalls abound, so they’re not for the faint of heart or anyone without infinite patience.

THE REST

Beyond that, we've been able to get a fair number of contracts at short-sale level prices on properties where the seller is up against the wall or just highly motivated to sell. In general, the whole market is selling at  discounts compared with two or three years ago. So just zeroing in on short-sales doesn't make much sense.