You still need a general contractor doing the work as in a 203k but the condition  of the  house can be poor as long as the rehab dollars address all deficiencies.

If it sells for more, that answers the deficiency question.

I will even say a home inspector is not going to tell you what you need to improve when flipping a house, he will give you a report of the general condition of the house, and any deficiencies.

This loan does not allow for a deficiency judgment.

The goal of the mandatory retrofit programs, under the ordinance, is to reduce structural deficiencies and improve the performance of these buildings during earthquakes.

And, you don't just lose 20% with deficiency judgments and labor suits, you can certainly go in the hole for more than you put in for a loan. 

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.  

*Security - home should protect security of property (security not as in weather or burglars but as in collateral) *Soundness - home shouldn't have any physical deficiencies that compromise structural integrity.AAn appraiser usually comes out to the property, conducts their inspections and documents all observations and expert opinion.

Please remit the amount of $17.83 payable to XXXX Title for the shortage and send to XXXX Title to account for the deficiency of prorated property taxes for 2014.

Do not purchase "train wrecks" - homes that have structural deficiencies that will cause probems with inspectors, appraisers, and banks when the market returns.