Foreclosure: The process whereby the lender takes possession of the property. When a homeowner fails to make the payments on his/her mortgage, the lender can begin foreclosure proceedings. This is a very specific legal process with set timelines and outcomes.
Short Sale: In a short sale situation, the homeowner's name is still on title of the property and is listed as the official owners who are trying to sell the property. Contrary, an event of a foreclosure happens when the lender takes possession of the house and the homeowner is no longer a party in the sale.
Distressed properties are auctioned at a Trustee Sale at the court house in the county where the property is located and must be paid in full at the time of the auction.
Because these transactions do not go through the same escrow process as regular sales, typically only seasoned investors will purchase property at a Trustee Sale. This is due to the risks and potential problems that are normally investigated and cleared during escrow. Problems may include: title, superior loan pay offs, liens, tenants or owners still occupying the property, and/or structural problems. The price may seem good at auction (priced well below other houses in the neighborhood), but costs and risks may come after taking title.