As a former mortgage and real estate broker that currently negotiates discounted mortgage payoffs, I can confidently say that most banks would prefer this strategy to foreclosure.Simultaneously attacking the growing surplus of available homes, similar lending standards could be available to individuals interested in purchasing a home.

What, otherwise, will be the policy in relation to dividends – to what extent is it intended to distribute / retain surplus profits?

If I had surplus cash I would hire the best inspector in the region but financially it doesn't seem worth the cost.

If no regular companies will take it you may be forced to look to the Excess/Surplus market (Lloyds of London is an example). 

The 1st mtg foreclosure would wipe out a secondary judgment lien.....I guess it depends on who gets any surplus there, junior lien holders or the owner.

We've had a lot of new construction in Ithaca and Tompkins county in the past 10 years, and there is still little surplus.

For rental try Builders Surplus, 404-350-1772.

My general investing strategy is to "clip off" the land's surplus transferable development rights for later sale to urban mixed-use mid-rise developers who need them and then flip the residual land, also at a tidy profit, on seller note terms.

You/they could also go to the auction and bid up that sale to try and create a surplus.  

Your question(s) concern the perspective of a junior lien holder as to how s/he is affected when senior mortgage goes to foreclosure sale.Generally, Junior lien holders are "wiped off" but the debt is not wiped out and remains, but unsecured.As a junior lien holder, remedies include:1) advancing funds to cure first mortgage in order to protect position;2) hoping for a forced sale that generates sufficient surplus (overbid) funds to pay junior debt;3) litigation to set aside sale due to claim of deficient noticing to junior bene (lien holder)Junior lien holders' claims for over bids are typically "pro-tanto" in nature, in that they are paid according to order of recordation, absent subordination agreement that would change order of lien position.If you are considering investing in junior trust deeds or mortgages, be sure to study title laws specific to the state(s) you are considering buying notes in.