They should have an insurance policy that lists you as the mortgagee and I would also be added as an additional insured and certificate holder.

The numbers don't seem to line up with that however, so the IRA account holder could potentially have some issues.  

A couple of weeks later, I found out that the auction was actually for a second mortgage and that the primary lien holder was now foreclosing against the guy I lost to.

For instance for note holders/1. what if your borrower neglects to pay property tax's you as note holder must pay them if you don't want to be wiped out at a tax sale..

Why would the tax lien holder sell to you unless you were going to pay a premium over whet he or she was due.

Since I write for a national title insurance company, if he wants a buyers title insurance policy I would get him one ( and the seller/mortgage holder as well)Oh yeah if he needs an offer or  P & S negotiated I would do that too.All just in a days works for a closing attorney here in MA!

What the big deal of the whole in trouble thing is the common sentiment people have against Voucher holders.

Currently the property is internet valued at 1.2mil and has no mortgage or any other lien holders.

Hard for me to say as a buy and holder, but the distance and fact your are just getting started puts me in that camp.  

Suggestion contact the bank (lien holder) and let them know that you are willing to pay (amount).