Newbie needing advice in San Jose, CA area

[Dawn Holley]

I feel like I'm missing something big here so I'd like to present it to the BP community for thoughts....

I have a good friend (trustworthy and afraid of bad karma) whose mother owns a few properties in San Jose, CA area. There is no mortgage, only late on taxes, about $40k between 3 properties. My friend was going through the process of buying one of the properties, a duplex, worth between $800-900k. His plan was to buy (OO, FHA loan) for about $250k and use that money to renovate one of the other properties (renovation cost of around $120k) then refinance and pay off the mortgage again. Then he got laid off and the loan didn't go through. Since his mother owns the properties, this is prop 13 and wouldn't have a huge property tax bill since he's family. Since it's currently late on taxes and he can't qualify for the loan, he asked me to help. The current owner can't do anything because her credit score is too low, she's not looking for money, just a way for her son to take over the properties and pay off the taxes.

I could purchase the duplex for say $650k, live in one side and keep the other side rented (current long term tenant in place, $1200/mo).  I have to add my friend to title so it maintains a family member on title for prop 13 taxes. Question #1, can he be added before fully purchasing the property or only after?  His proposed plan is that $325k goes to him for renovations and refinancing per his first plan.  $325k goes to me to invest in another purchase (buy cash and brrr or flip).  Once I refinance on another purchase I would pay off my $325k, he would have refinanced his property and paid off his portion and I'd move the title to his name and be out of the picture but with a new rental property.  This would take place over 6-12 months and I would maintain reserves in case something goes wrong and need to continue making mortgage payments.  I have an additional $75k in savings ($22,750 used as 3.5% down payment, leaving $52,250 reserve plus what I don't use on investment and rehab cost).  Also, I live in the bay area where everything is very expensive so I'd be looking for investment purchase 1-2 hours away or out of state, which I have researched.  

Of course there are a lot of small details that I'm either not including because this would be too long a post, or I need answers to. I'm assuming I need a minimum of a lender, realtor for paperwork that I haven't a clue how to navigate and a CPA to map this out. I have these people lined up. Do I need a broker as well? An attorney? Do I need to make my friend a partner and form a contract? Can I even do that with an FHA purchase? Maybe there's a better way to look at this rather than FHA purchase. Like I said, I think I'm missing something major here. As in, this is all completely illegal and in violation of the loan? Maybe I need to formally borrow the money from the seller in order to use the funds. I can also mention that I'll be maintaining my current home (family owned rental, not in my name), so I'm not worried about the short term living situation. Maybe I can not move and form a partnership with my friend and do some type of creative financing purchase rather than FHA. I just don't know. Since taxes are late, something needs to be done soon.

Thoughts??

Thank you!!!!

Dawn