Does holding a 2nd place lien make me safe on a flip deal?

[Jim Stanley]

Not sure if this is the right place to post, but I figured this is where the people with the right knowledge would be:

I'm a beginning investor near Denver, with 1 SFH rental, looking to learn and grow. I met a guy at a foreclosure auction who invests in a lot of things: foreclosures, buying notes, flipping houses, wholesaling, some other stuff. He has offered to teach me and let me in on some deals.

The current offer is this:
We will knock on doors of candidate properties together until I learn what to say, then I'll do it solo. If I find one that he ends up buying, he will pay me a small finder's fee. He has a money man that he borrows from, but he does still need a down payment. I will invest $50k of my money (from my self directed IRA) as part of the down payment. His money man gets 1st lien on the property and I get 2nd lien. Once the flip is sold, I get my $50k back plus 10% APR. If the deal works really well for him, I get a bonus of unspecified amount. I help out on the whole process wherever I can to learn the business.

I have no particular reason to distrust this person, but I want to do diligence and understand my risks.  Please tell me if I am wrong about anything and if I am missing anything (I'm sure I am!!)

-worst case- he just plain steals the money without giving me the lien, gives me a fake lien, etc  Pretty unlikely but plausible.
-really bad case- the house burns down and the property is worthless. Would his insurance cover me on this?
-really bad case- we buy a property that is worthless (built over a toxic dump, etc).  I should be able to mitigate this myself by doing diligence on the property before investing, and assumedly, so would he.
-most likely case- the flip just does not go well and the profit is negative (or he claims negative profit even if it is really positive).  Please correct me if I'm wrong here, but I THINK my 2nd lien protects me here.  He pretty much has to sell the house to pay back his money man (or the money man forecloses and sells it), and I get paid then, correct?  I THINK the worst that would happen in this case is that I would not get my 10% interest and my $50k principle could be tied up a long time.  I suppose he or the money man could simply keep the property and not pay me- would I have any recourse then?

- What else?

THANK YOU VERY MUCH

[Bruce Woodruff]

Dude - Are you serious? This stinks to high heaven! Even with a good LTV....

Take your $50k and use it as a down payment on a nice little fixer-upper. Live in it, rent it, STR it, whatever...