Any real estate property that is currently under the ownership of a bank or lender is termed as REO.
The lender/bank attains ownership to the property, either through an agreement with the owner during pre-foreclosure or at a public auction. They usually sell the property to recover the unpaid loan amount. The potential bargain is often less than a pre-foreclosure or auction property.
Although the lender usually clears out any liens on the title, you should be cautious and make sure that the title is clear. Usually the lender focuses on recovering any money they've invested in the property, but you still have a fair chance of getting an offer which is well below the market value.
Since banks treat an REO as a non-performing asset, they try to sell such assets as quickly as possible. Except in such cases where a "redemption period" is stated, banks are free to sell REO’s under their possession at anytime.