I went over there, and sure enough, it's defective.  

You're paying for your attorney's advice based on his judgment, knowledge of actions as welll as statues.Selling "as is" is not always a get out of responsibility card, hidden defects is one thing, known and not disclosed could still be fraud.So yes, listen to your attorney,IMO.

Then, if the walls start gushing when they turn on the water, ask for a price reduction based on the non-obvious defect.

Just to clarify, the new law addresses titles where the foreclosure was invalid, subsequently rendering the title defective.  

If the property has more than the 21 units, which are owned by others, where you are only buying the developers or an investors unconverted units then this is a defective condo conversion.  

If I'm reading them right, I can win the auction, order my own title insurance, and THEN either cancel the purchase in case of undisclosed defects or get a special/limited warranty deed from the seller.

If I'm reading them right, I can win the auction, order my own title insurance, and THEN either cancel the purchase in case of undisclosed defects or get a special/limited warranty deed from the seller.

Also make sure to get contractors liability coverage, as you could now have a product defect claim for up to 8 years (I believe that is the statute of repose in CA)  

Ultimately I didn't close as they would not cure a title defect, but other than needing a fridge and a doorbell repair, the unit was move-in ready.

Be sure and do a detailed walk-thru with a qualified agent of the company before anyone moves in (take pictures, note any defects, state that 'everything is in good condition unless otherwise noted').