This obviously raised some red flags because - why would he do that? 

I try not to make anyone layout any money until I know for sure that I have no red flags otherwise that indicate that I would not accept them as a tenant.

If they are telling you that they are not spending on repairs that would be a red flag.

Also, with the red tape involved in 203k, I'd rather go out of pocket in that sense too!

I own a house in Redding, CA that has a mortgage on it of $756,000 with OCWEN.

Unless demand for MH is red hot in this area and you can sell them off in 24-48 months, this deal looks like a time/capital black hole.

Be careful about those Items being "free" is usually raising a red flag. 

Red flags for me.

However #2, in this red-hot market, Seller can easily get offers way way above last comp and the asking price (won’t be able to comp for certain).

The emergency wreck and remove is an obvious red flag...but even if the city says you can fix it up I don't think there's any way to get this done using licensed trades and pulling permits for $100k.