HUD homes are residential properties insured by the FHA that have been foreclosed on and are owned by the U.S. Department of Housing and Urban Development. They typically include one to four units. When an FHA-insured property goes into foreclosure, the FHA pays off the original lender, and the home becomes the property of HUD, which puts it up for sale in order to recoup the financial loss. 
It is possible to find deals on HUD homes. Some areas, as designated by the FHA, are considered "revitilization areas."  Efforts to increase home ownership in these areas include selling HUD properties at a discount.