What are good Terms for a pre-auction property?

[Aaron Knoll]

Here's the situation:

A nice house in a great neighborhood is being foreclosed on. Auction starts in 2 weeks, starting at $220k. Since it is a hot RE market, I suspect it would fetch much higher -- comparable auctions have! I estimate the amount in default is somewhere between $280k-300k. Home would likely fetch $450k on MLS ($500k after renovation) -- I'm more interested in buy-and-hold. The owner has declared bankruptcy, is supposedly trying to save his home via a HAMP modification but that's hasn't moved fast enough to stave off foreclosure. It's obvious this family has fallen into hard times. They're going to lose their house, but from my perspective I'd much rather see them keep the 5%+closing costs (and apply that towards 3 months rent from me) than have an online auction house pocket it.

After the tenant left, the house would easily fetch $2500/mo -- and significantly more from AirBnb due to location. Property taxes are low, so that's around a 7% cap rate. The house needs some cosmetic work but appears to be a reasonable shape (obviously I would insist on inspection).

This is significantly more complicated than my last deal. 

What would a typical terms for such a sale look like? Would it be between myself and the owner, or myself in the bank? Is there any deal I can make that can stop the auction? If I offer terms, should I hire a lawyer? What are some common pitfalls?

Thanks for advice.