MarioF

I've been selling real estate for over 20 years so let me throw a few thoughts at you. Some things will be different because of area (I'm in the DC area) but not by much.
If you check the tax records of the property it will show what the bank paid for it at foreclosure. They have to buy it back for the total amount due on the note at the time. So it's just not what the mortgage balance was, it will include late fees, interest to date of foreclosure and the legal fees incurred to foreclose. In our area we are seeing foreclosures that the bank has 450,000 in coming bank on the market in the low 200's. They are typically selling quickly at those prices and the banks are usually not dealing off of those numbers. They will keep those prices for at least a month before they reduce if it doesn't sell quick. We have found that most banks are not dealing much off of there prices but it's still worth a try. A lot depends on the person at the bank handling the sale. Sometimes they get bonuses for getting things off the books, but sometimes they are very limited in what they can do because the bank has hired an independent appraisal and they can't move much off that price without justification.
Now about your specific case: Be very careful, foreclosures are a dime a dozen so don't overpay. If it's been on the market for a long time and hasn't sold, and on top of that may have mold or other issues it has to be a fabulous deal or you need to be able to walk away. Disclosures are a scary part of our business, even if you've corrected it you may have to disclose it when you go to sell it. I'll tell you what I tell my buyers; yes it could be a great project and maybe it's a deal but just a deal is not enough it has to be a great deal. And in your case the only way to know is to get educated on your market see other houses, see what has recently sold, get a professional realtors opinion on value after you do all the work on it. It should have close to 100,000 of equity in it after you've bought it and spent money to fix it up, to make it worthwhile.
Sorry for the long post and feel free to message me or ask any questions you have. I do this full time and sell a ton of houses and answer questions all the time.