Trying to buy a property before foreclosure

[Mike V]

There is a property next door to a friends' house that is currently in pre-foreclosure we are interested in trying to buy.

Notice of default was filed 6/6/09, so the 90 day window is coming soon. I went to the county recorder's office today and found the listed property owner is in default on several properties, including this one. The first mortgage for $430k is $40k past due (no payment since 7/2008). 2nd is $110k and couldn't find anything on that one but I'm guessing they are in default there too. Property taxes haven't been paid since 2004, so they are behind $30k (county won't seize property until taxes haven't been paid for 5 years, or 2010). So there is about $570k due on the property, that is now worth ~$400-500k.

My first thought was to try a short sale with the owner. The person currently living in the house is a 70 year old sister-in-law of the owner that thinks they are going to sign over the property to her (which is what they told her when they took her money to buy the place but never put it in her name) so doesn't want to give me the contact information. I found contact info for the owner from an internet search, but haven't been able to contact them. Based on what I found at the county recorder's office today with multiple defaults & back taxes, my guess is the owner may not be responsive to a short sale even if I can reach them. I have some bank information from the deeds and default notice, but no account info. My understanding is that the bank won't talk with me anyway unless I can get an authorization from the owner anyway. I guess without the owner's cooperation, this isn't possible.

Is there any point in trying to contact the bank to try and buy it from them on day 91? I can try to buy it at the county auction before as it becomes REO, but I know I would still be responsible for the back property taxes. Would I be responsible for the 2nd mortgage too? Are the auctions cash deals or if I have financing through a lender is that OK? I'm guessing the first mortgage holder wouldn't let it go at auction for much less than what is currently owed.

If it becomes an REO, is there any point in trying to work out a deal with the lender before they try to list it for sale?

At what point is the 2nd mortgage holder out of the picture? I can't see this property being worth more than the 1st mortgage balance and back property taxes, so even if they try and sell it the 2nd is out of most of their money.

Thanks in advance for any inputs,

Mike