I stepped in and negotiated these all out for them. paying a bunch off foreclosing on a bunch etc etc. they got out of it by the skin of their teeth but lost ALL their money.

If the deal is too thin to support a hard money loan and/or there is not enough borrower skin in the game to recoup your capital if things go awry, then you can lose money just like any other investment where capital is put at risk to earn a return. 

Personally, I wouldn't invest w/ a first-time lead who has no "skin in the game", and prefer that even seasoned deal sponsors have aligned interests via their equity investment.  

Good Credit, guaranteed money back, skin in the game (money down)????

When I lend money to flippers I insist for them to have a skin in the game.

They want you to have skin in the game.The bank's term sheet or commitment letter will state that they will lend you the lessor of XX% of the appraised value or purchase price.

you can tell from my picture that I do not resemble the main stream  shape or skin color . 

Second, you would effectively have no skin in the game.

I thought that was fair - he is also going to look into getting a line of credit to throw a little cash into the deal or keep it as a reserve so he has some skin in the game.  

It worked out well for him, because he basically got a "turn key" house that he could "test drive" for a year before actually buying without much skin in the game on his end...