Is It Legal
I was informed that when a bank forclose a property, which is called (reo)
by law, they cannot sell the property for more than the forclosedamount, in other words they are not suposed to make a profit. Also when a real estate co. is selling a forclosed property for the bank, is the bank required by law to make sure of free and clear title? which means paying for city inspection as well 
When the bank is foreclosing (note: foreclosing as opposed to foreclose a/k/a property already taken back as an REO) the bank is entitled to the amount it is owed (principal and interest) plus attorneys fees, court costs, and preservation costs (if any). Any excess recovered at the judicial sale would go to the junior lienors (if any) and excess goes to prior owner as their equity.
Once the property becomes an REO, generally the bank just wants to get their money out. If they decide to sell it for more, I am not aware of any prohibition against them doing so. At the point that they take back the property as an REO they are entitled to do with it as they choose. You have the right to receive a free and clear title to the property regardless of who is selling it.
Banks usually tend to make money else where. They basically just want to get whatever money they can out of a property. Because of this, many times you can offer a bank 60k for a house worth 100k, just to make sure they will get atleast that, and not have to pay a laywer, taxes, and any other foreclosure costs.
[addsig]
you said:You have the right to receive a free and clear title to the property regardless of who is selling it.
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Be cautious on blanket statements like that ... that varies state to state. In illinois, for example, most (if not all) "sheriff's auctions" specifically state that you get squat for clear title, have to do your own research, and you are responsible for any and all additional liens. Not for the faint of heart or inexperienced ... in my opinion.
on the clear title thing, the same usually goes for tax deeds. it is your responsibility to "quiet the title."
Note that my answer was aimed at properties that have become an REO (already taken back) and NOT purchased at sheriff's sale. [ Edited by jorge121 on Date 11/23/2003 ]
That is not illegal at all. They can sell thier REO's for what ever the price that the buyers want to pay. If they make any profit, the profit may be paid to the original owners. If there are any deficit (most of time, there are), they can still try to collect the amount of deficit from the origianl owner.
"If there are any deficit (most of time, there are), they can still try to collect the amount of deficit from the origianl owner"
This blanket statement is only partially right...some states are deficiency states, some are not, and in the latter, NO deficiency action can be pursued against the ex-owner.