In answer to the second part of your question - you should work with a licensed real estate professional in your area who is experienced in handling distressed sale properties such as short sales or preforeclosures.
In general, the process is the same as purchasing any other property, but you will have to deal with the lender. The lender has the final say in whether or not a short sale will be approved, and the process can take as long as 120 days or more. In addition, short saled homes are usually sold 'as is.' The seller will not have any funds to make any repairs, and the lender won't cough up any funds either.
If you find any homes that you'd like to purchase and are in need of repairs, you should look into the FHA 203(k) Rehabilitation Loan program (see http://portal.hud.gov/hudportal/HUD?src=/program_offices/hou ) as well as the Fannie Mae HomeStyle Rehab Loan (see https://www.efanniemae.com/sf/mortgageproducts/pdf/hsrenofacts.pdf) and the Fannie Mae HomePath Rehab Loan (see http://www.homepath.com/financing/index.html) programs. Ask you lender for the details on these programs.
This is a great time to invest in real estate. I am familiar with the short sale (pre-foreclosure) process and would be happy to explain and go over the process with you. I have the Short Sale & Foreclosure Designation from the NAR and could certainly share a few insights with you.
Shoot me an email or give me a call at (315) 701-6992 to set up a time. This would only be an informative meeting, no obligations.
As for taking cash out at closing, I know it happens, but I have only seen it happen once and then the guy got a couple thousand dollars in repair credits, that's it. I know you hear it all the time on infomercials, and perhaps it does happen, but I have only personally seen it once and it was no big deal.