She even went so far as to make up a fraudulent document from the Arizona Disability Act which she sent to me.I checked what the actual law was and found out that a landlord cannot forbid a disabled tenant from modifying the property as long as they return it to its former state when they vacate.

But don't be surprised when you get a letter from the state proposing a fine for fraudulent activity.

Thats simply gambling on a hunch.

you say Your partner/friend knows the neighborhood and the risks and is willing to gamble.  

The fraudulent e-mail will contain new wiring instructions or routing information, and will request that the buyer send transaction-related funds accordingly.

You would be hard pressed to find properties in the 60 sq ft range which  are in your own backyard There is nothing like mining your own neighborhood and investing for both cash flow and appreciation Study you local market and I be you will find both types of properties that would be much less of a gamble then venturing into the unknown 

(you are still gambling on appreciation, but the odds are good the rents are rock solid)If it is in National city, chula vista, vista, oceanside, etc..

And, taking a deed in lieu, as a wrongful foreclosure, you're not really out of the woods after filing that deed, you have statutes of limitations and, if there is any fraudulent manipulation involved, the statute of limitations begins upon the discovery of the act, not when the act was committed. 

The guy with a gambling problem can discharge.

If you've got the house a crazy good price, this may make sense for a flip, but it is definitely a gamble.