The document flaws at GMAC were stated by a GMAC employee in a deposition as part of a lawsuit - I tend to believe they are real, since the document counts are fairly large, and the practices used to keep up with that volume will almost certainly lead to short-cuts.

Count on Steve to uncover the hidden links.

This topic is discussed in this thread:http://www.biggerpockets.com/topics/55603--foreclosures-slow-as-document-flaws-emerge-Banks are pulling inventory off the market because of the foreclosure document fiasco in the recent news.

There were a ton of problems with the software to the point where they had to create a whole new site just for complaints.I was shocked to see that many people complaining and the worst part, the software owners didn't even acknowledge the complaints instead they either deleted them or just told them it's all in their head.There were major flaws with the software that didn't warrant the $997 set up fee and the $97 monthly fee to keep it.Also you mentioned the comps.

The inspection contigency still offers you the freedom to back out of the contract within a certain time period with no fault to you if the inspection turns up significant flaws that were not known about.

I can't really see any tax/legal flaws with this.

There is no way you can tell from the information given, but a balance sheet would sure shed some light on it, even if the balance sheet was not 100% accurate.Hard to fudge on what is owed, and if the value is fudged, due diligence would uncover that.

If it needs more repairs or has some fundamental flaw, it will be uninsured.

Do the buyers have any recourse if there is a title flaw?

Typically, in an installment contract/ land contract/ contract for deed (take your pick, all very similar), you will not get the deed until you have paid the contract in full - similar to automobile purchase.So, your reasoning for buying on a "contract sale" seems flawed.