There are two apparently attractive options for buyers scoping out a deal. One type is the "short sale," where sellers have made an agreement with their lender to sell the home for less than they still owe on the mortgage. The second type is the REO (bank-owned) home, which has fallen back into the hands of the lender after the sellers defaulted.
While these properties may be appealingly priced, buyers need stomach and smarts to take proper advantage. If you're considering a short sale purchase, focus only on those with a price pre-approved by the lender. Otherwise, you may be wasting precious time in negotiations that may still ultimately fail.
Also seek out foreclosures that are protected by the Cash For Keys program, which offers the current (or former) owners a cash incentive to prevent them from neglecting the property before vacating it. Either way, inspections are crucial, especially if the house has been vacant for some time. Talk to your agent about having the utilities temporarily reconnected for the inspection, so you're sure all is in working order.
And finally, don't focus on the asking price alone. Location in a declining neighborhood or extreme maintenance and repair issues will eclipse any perceived value in a low price. Great homes are out there at bargain prices, but let an agent guide you through potential pitfalls.