I just bought a foreclosed home as an investment in June, in Dearborn, Michigan (near Detroit). I could not have done it without the Michigan real estate agent I used, who specializes in these kind of sales.....Even though I am a licensed real estate agent!
If you want to go that route for a home for yourself, your first step is to find a real estate brokerage that handles a lot of these sales, or that specializes in them. Find an agent who has done 20+ of these, then call a couple of the buyers and see how it went for them. These houses are also called REO's (for real estate owned), and bank-owned. (A short sale is something quite different.)
There are many risks associated with bank-owned homes, I discovered. The foremost is latent mechanical defects, which the bank may not be required to disclose. My house had burst pipes from freezing that were covered up and not visible on inspection. You won't be able to talk to the former owner, so you will be completely unable to find out when the heating system was installed, for example. It is really buyer beware.
On the whole, I cannot recommend this to the average first-time buyer.