In the middle of the road, we have the real estate short sale technique. This is a way for the homeowner to sell the home quickly in order to avoid a complete foreclosure of the home (something to be avoided at all costs). With this approach, the lender gets some of their money back, the homeowner avoids foreclosure, and somebody gets a good deal on a home.
How does the buyer in a real estate short sale typically get a good deal? Because of the very nature of the short sale. Through this process, the lender agrees to let the homeowner sell the home for less than the amount the homeowner still owes to the lender. Naturally, this often means that the home will be sold for less than market value as well.
Why would the lender do such a thing? They do it because they want to sell the home as quickly as possible to avoid losing any more money from the nonperforming loan. The lender also wants to avoid foreclosing on the home, because that means they will have to manage and sell the property (or pay somebody to do that for them). So the real estate short sale is a way to get the loan off their books quickly, without having to go through the extensive process of foreclosure, real estate auction, etc.
So as far as terminology goes, you can think of the short sale as a way to sell a pre-foreclosure home ... and the real estate auction as a way to sell a home after it has been foreclosed upon. Both of these options might be a good investment opportunity for the savvy investor, but the short sale is more streamlined and direct (avoiding the possibility of auction with multiple bidders driving the price up).
This investment potential, combined with the fact that we have record numbers of foreclosure homes available right now, is why you will hear a lot more about the real estate short sale in 2008. And now, whenever somebody asks you what is a real estate short sale ... you'll be able to tell them.
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