Yes, foreclosures are time consuming and difficult, but sometimes they can be a wonderful opportunity,and in many locations in the lower price ranges they are the predominant types of sale.
So the question of unpermitted construction is an issue in any kind of sale. If the bank owns the property they will not disclose if there is any unpermitted work unless they know about it, which they generally do not. Many cities have therir permit histories on line and you can just go to the city's web site and check for permits. If they are not online a trip to the city will be needed.
The problem with unpermitted construction is that if the city comes to your house to inspect something, say you are putting on a new roof, or remodeling your kitchen, and they see unpermitted construction they can make you tear it out, or some cities will allow you to have the work inspected and permitted after the fact, if it was done correctly and is within city guidelines for setbacks etc. If you have a whole room that was added on without a permit and the city says tear it down, you have to tear it down.
Sellers need to disclose if they know of work done without permits, but banks do not, so it is up to you. Personally I think buying a house with unpermtited square footage is a bad idea, whether it is forclosed or or a normal sale.
If you want to learn a litle more about foreclosures and short sales you cna go to my web site http://www.marcymoyer.com
and click on the link Distressed Property Sales.