A house which has had a NOD filed is still owned, until the period to Redeem the defaulted amount of monies expires and the Bank trusters ownership back into their name it really isn't a home that you buy from the bank.
You could however buy it from the Home-Owner during that period. If the sales price is LESS then the amount owed, then this would be a Short Sale.
In all the scenarios I do recommend that you consult with a licensed Real Estate agent. Please call if I can be of any help.
Some buyers get a NOD filed, simply by missing a payment (banks can be overly aggressive in filing them). However, as you are intimating, it usually is a fore-gleam of things to come.
It's best to contact a reputable Real Estate professional to get the best advice. The old adage is true: if a deal seems too good to be true, it probably is.
The last thing you want, is to get into a real estate transaction, not having all the facts, and then losing your deposit, because things weren't made clear and understandable to you.
Scary things aside, it REALLY is a great time to buy. There are plenty of good deals to be had, whether short sales, REO's, auction sales and yes, even non-distressed home sales by Realtors in the neighborhood. Remember, there's more to a home than just price: location, location, location...
that's my 2 cents...