Bank-owned houses (a.k.a foreclosures) are houses taken away from previous owners who couldn’t fulfill their loan terms and now owned by the lenders (banks). Bank-owned house is usually in a bad shape and rarely the house could be filled with intentional hazards from the previous owner’s release of their anger (e.g. clogging up sewer system). On the bright side they are cheaper than comparable houses in the neighborhood. Other than these circumstances, buying a foreclosed house is same as buying a regular house.
Buying a Short Sales house is more different (and more complicated) compared to buying a regular sale house. Short Sales transaction occurs before the owner loses their house; it is selling of the house for a smaller amount than what the owner owes to the lender(s). The owner/seller wins because it allows them to save some of their credit score. The bank(s) win because the money they obtain from a short sale could be higher than the money from foreclosing the house. The buyer wins because short sales house is cheaper than comparable houses. Sounds like a win-win-win situation for everyone? In order for short sales to go through, all banks must accept the terms which can take months and even years. Purchasing a Short Sales house works well if the owner has a loan from a single bank but most likely that is not the case because a typical Short Sales seller will have multiple loans on the house. Usually the lenders from non primary mortgage loans are not happy with a short sale because they usually get least amount of money.