Buying a rental with a $40,000 Medicaid tax lien

[Matthew Konkel]

Here is what I know so far:

Medicaid has a lien on the house for $40,000 and is making her sell it.

She owns the house outright and hasn’t lived in the house for about 4 years

Last year they did buy a new stove, dishwasher and furnace (not sure why) 

The mom wants the house sold fast and wants about $12,000 extra cash for herself.

The house: 

Is a 2 bedroom, 1 bath

lot size of about 9,000 sqft

house is about 800 Sqft

Has a lot of deferred maintenance 

They are nervous about doing an inspection, which makes me suspicious 

The house next door is on the market for $215,000, but is a 3 bedroom 2 bath. 

So here is my plan:

I take out a loan for 40,000 and buy the house (not sure if Medicaid will let them sell it for below market value)

I then refinance the house and pull out a second mortgage or a line of credit of about 100,000. I use that money to pay off my original loan, give the mom $12,000 and use the rest to fix up the house, since no one has lived there for about 4 years. 

Depending on the numbers I would either flip the house or hold it as a rental. 

Any thoughts on the plan or problems you see arising during the process? I know very little about liens.