It may "seem" more expensive, but all it is is one year renewable term with a built in savings component.

One unexpected maintenance or tenant turn over expense  and your profit is wiped out for year.

Well ideally you create a chart of all the components of a property and est haw many years to replace each.

Just one unexpected expense can run in the thousands.

I have a lot of experience in evaluating homes and the many problems they can have.While I don't mind evaluating home structural component problem I am no longer into fix and flip (on a regular bases) because I don't want to deal with subcontractors or have my own crews to manage (unless I learn to speak Spanish) to rehab houses--I'm bored with that.  

Neat pics and project....you have some "vintage"  mid century components...

Obviously older homes come with unexpected surprises.  

Unfortunately, even without the unexpected overruns, I suspect that your fate on this deal was sealed the day you closed escrow.

It is up to a bankruptcy trustee and judge to accept an offer.Here's an article I found: http://www.findwell.com/blog/buying-a-home/buying-...As far as seller receiving money from sell price higher than payoff -- my opinion is if the house is foreclosed upon, and the property has little value other than land component (highest and best use a house tear-down), there is no guarantee the bank will sell the property for the full value of his payoff, especially considering the bank could sell to an investor at a discount, such as you were offering.  

But continue to ensure that what you are buying are deals and don't allow some unexpected funds to cloud your judgement.