Pre-Foreclosure: Owner receives Notice of Default. Buyer negotiates with owner but must be able to pay off at least the amount owed on the mortgage. Traditional sale happens here.
Mid-Foreclosure: Owner receives Notice of Sale. The time between the notice and the sale allows the owner to complete a Short Sale. Buyer must have bank approval. This is long, drawn out and a game of patience.
Auction/Sheriff Sale: Buyers usually are competing against lenders for the property. Must have funds to pay for the purchase immediately. No inspections, no warranty as to condition. Buyer beware. Any liens written after the one under foreclosure are still active on the property.
Bank Owned Property/REO: After the redemption period after auction. Properties are usually listed with real estate agents. Inspections allowed. Liens removed. Clear Title. Traditional sale happens here.
Here is some additional information: "Foreclosure Overview": http://www.bankforeclosuressale.com/overview.php
The houses are often in terrible shape .The former owners have often not maintained the house for years.
The houses have often been vacant for a long time.and without supervision and maintenance .
Some times there are uninvited guest (Squatters ) that do not want to leave and nobody can help you to get them out.
These houses might be good for a very dedicated handyman with cash and a lot of time .
My experience is that we could buy similar houses in good condition in a more economical way
by buying a regular re-sale .Look for homes that have been on the market for a while .
I hope you do the right thing and enjoy your purchase.
You should be considering EVERYTHING on the market - and determine their value on a case-by-case basis based on how it is individually priced against comparable properties. A "traditional" seller might have a lot of equity in their property, need to move quickly, and price it below or inline with what the distressed properties are listed at to ensure it gets sold quickly.
Just because a property is labeled a "foreclosure" or "short sale" doesn't automatically ensure it's a rock bottom deal. How a property is priced against comparable properties in the same area, and the condition of the property - does.
The good side of it is that there are NO obtainable liens, NO negotiations with homeowners, and NO encumbrances.
While the bad side of it is that you cannot check the property beforehand. It needs a significant and immediate cash to throw out the occupant from the home.
Two basic ways, through an agent once it's listed or with cash at an auction. Auctions do not permit you to preview, inspect or receive any disclosure about the homes. They require cash (certified funds) and do not allow you to set up conventional financing. There may be a Hard Money lender who will set up some short term financing for you, at a premium.
At an auction you are competing with many knowledgeable investors who do this full time professionally. If you choose to go this route, take your time and do not get emotionally attached to any specific house if you are looking for a good investment. I hope this was helpful.