Question: "I'm interested in buying foreclosed property, but isn't it making money out of someone else's misfortune".
I don't regard buying foreclosed property as making money from others misfortune; that is what governments do. They create the recessions and structural imbalances through their monopoly over the use of coercion. A power they use to distort rather than to protect. It is not the responsibility of a buyer to protect the interests of the seller. If the seller thought they were going to get a better price, they would not sell. If they subjugated their rights to sell their property in case of default, then they made inadequate provisions to protect themselves, nor to understand the market into which they bought. If you buy property from a distressed seller, and encounter some angst from them, it would be nice to be able to communicate your empathy to them. Aside from that, you can only regale them of the hazard of government arbitrary power. They should direct their anger towards their nearest federal government. Market participants merely act within the law, the problem is 'arbitrary law' created by governments which distort markets and in the process place participants in a position of unnecessary vulnerability.
If you want to know more on the flaws of government; we do a great deal of writing on that issue on our politics blog. Nope, I'm not a conservative or a liberal; though I understand your confusion. That's how people lose money on property.
It is true that the Japanese system of selling favours the buyer in several respect, but again that is because of government, or silly Japanese suspicions about yakuza. The reality is that many foreclosed properties sell close to market price in the inner city areas. In the rural areas, they sell at huge discounts because of embarrassment and depopulation. Should buyers stop buying in these areas? No, that would reduce the dollar price recovered, and the banks would probably benefit anyway. In any case, its a market, which entails buyers and sellers taking advantage, or so they think, at the expense of others. There is a greater issue of responsibility here.
