I don't like the lack of control and the entire thing strikes me as a legalized gambling operation where the house has their thumb on the wheel.  

I don't see why that would be fraudulent.

There is nothing fraudulent or unethical here, you simply do not fully understand the process.

This is a heck of a gamble.

For $50 a month, you are really taking a gamble on not getting the 3 showers a day tenant like @Colleen F. talks about.

Unfortunately you just have to pay it or walk away from the idea of getting clear title as you have no grounds to stand on in these situations as you ARE subject to the first mortgage at the least.It is a legal form of gambling and not for those that aren't prepared to lose everything they spend on these deals. 

Its a gamble but my thinking is I need to get the property for the lowest possible price and I never want the seller to accept my first offer because that tells me I offered too  much.   

What he did was fraudulent.

If you are currently risking a lawsuit and you transfer to an LLC or Trust, you could still be sued for fraudulent transfer and be forced to transfer the property back to your name if you lose the lawsuit.

This deal sounds too good to be true.You might be thinking "$500 isn't that much money, maybe worth the gamble".