REOs a good option for inexperienced buyers

A more attractive option for first-time purchasers of a foreclosed property is a REO, or real estate owned (i.e., bank-owned) property. These are properties that have come into the possession of banks or other lenders through the foreclosure process. An REO usually won't have problems with a cloudy title, back taxes or other legal issues, since the bank clears them up prior to the sale. You can also require a home inspection as part of the sale, so that you can still back out or modify your offer if serious problems are found.

Huge discounts are unlikely with an REO, but buyers typically can expect to save about five percent off the market price - perhaps even more with the current flood of foreclosures on the market.