Hopefully it balances out and ends up net positive. 

The risk that the borrower can default, the risk that you will have to foreclose, the risk that you will have to take over payments on the 1st TD if you are in 2nd position, the risk that you have to invest $$ into the property to sell it... 

Would anybody in similar position be interested in starting a partnership/s to go in on a loan together?

It might be one of those positive sunk costs to increase the value when financing.

If you have deep pockets, I think Austin will eventually reward you, but if you are a newbie in real estate looking to cash flow positive day one or shortly thereafter, Austin is probably not your best bet in TEXAS.  

The loan shows it is SUPPOSED to be issued only if its in 1st lien position, but if a mistake was made in 2005 it would not be in 1st lien position.

You could easily flip this article around to show the positives. 

Strategic negotiations secured the property at $170,000, positioning us for a quick and lucrative resale in a thriving market.

When lenders calculate your DTI and your owned properties are breaking around even or a little cash positive from rents, do they basically look at those as no debt or even positive income to keep giving you more loans?

Positive SolutionsProblem: In my county small multi-family houses are nearly non-existent and short-term rentals and second-cooking-areas are illegal.Solution: House-hack while renting MTR to traveling medical professionalsProblem: I didn’t know the many laws of the countySolution: A hired attorney 1) informed me that the county calls a house-hack a boardinghouse and 2) drafted a very comprehensive agreement that includes answers to your list of questions.Problem: Interpersonal problems can be a risk.