This question has been asked of me (Robby Milam, Realtor, RE/Max, Real Estate Consultants, Chapin, SC) several times in recent eighteen months or so.
Prior to foreclosure, owners may counsel with their banks mitigation officers and possibly arrange for Short Sales. In this type sale, the owners will need to pay all shortages (if any) or face credit issues later. The loss follows the sellers the next five to seven years after the Short Sale (regardless of the sellers credit scores). The number of years varies depending on the sellers' sources of finances (i.e., conventional lenders, government backed lenders, etc.).
The short sale process is basically a simple process:
1) Buyers make an offer and the sellers accept, reject, or counter that offer. If accepted, the bank will have to approve the short sale before you have a ratified agreement and contract.
2) The realtor representing the buyers and the realtor representing the sellers, get paid their commissions from the Seller. This amount will come out of the proceeds the bank gets at closing, so it truly comes from the bank, and must be approved by the bank. As for a Realtor representing both parties, this is a dual agency. This is where the Realtor does not truly represent either side, but actually represents the deal, so it is done correctly for both parties. No advice is given, no confidential information from either side is shared.
3) The closing attorney is chosen by the buyers in all transactions. Here's the catch, though. If you would like a different attorney from the one the Seller has chosen, the buyers will have to pay for the attorney and their title insurance.
4) The "outs" the buyers have are all in the contract, and include the inspections, appraisal provisions, and the survey provisions. There may be more provisions. You would need to refer to the contract itself. It is most important to recognize, the property will likely be purchased "where is, as-is" in Short Sales. Therefore, asking for something to be fixed, probably will not happen. But, you may be able to cancel out of the contract if you find that there's a fatal flaw, like structure issues or termites infestations.
Also prior to foreclosure, owners may consider discussing Lease - Purchase Options with their banks. These options may be approved from time to time. In no instance would owners facing foreclosure proceed without banks approvals. In this instance, owners would want to call reputable realtors and seek qualifed buyers desiring such arrangements. This is the least likely scenerio for successful bank approval.
However, once a home goes into foreclosure and the court ordered processes and hearings are completed, the bank takes possession of the home. Banks are not in the property management business. Banks desire quick sales remedies to generate capital, rather than experience more losses.