Bank owned properties, also known as Foreclosures or REO, can be a great way to find a good deal on a property and in some instances gain instant equity. Buying a foreclosed property doesn't always mean that the property is a good deal though. Sometimes the property has been vacant for so long that it can cost the new owner a lot of money to get the property in habitable condition. They can also be targets for vandals to remove expensive systems that may not be discovered until after closing. A thorough inspection by a qualified home inspector is always recommended.
Short sale properties are properties that owners owe more to their mortgage lender than what they can sell it for. The owner may experience the inability to repay the mortgage due to financial hardship, medical hardship, career relocation, or a number of other reasons. The owner then puts the home up for sale and enters into negotiation with their lender and requests the lender to take a short payoff, which is why it is called a short sale. The name is a bit of an oxymoron since the transaction is rarely short in duration. The average short sale process takes around 6 months to complete and in many cases go much longer. They can be a way to purchase a home at a discount, although every lender and investor is different, so there is no way to guarantee that the lender will even participate in the short sale. The lender may decide to just foreclose on the home and take the property back. Some lenders may only agree to sell at the current market value making it unattractive to a buyer to wait months on end only to find out that they will need to pay full market value for the home. If you decide you want to purchase a short sale make sure you go in with your eyes wide open and expect the process to take 6 months or longer. Anything shorter than 6 months is a bonus!