Consider an option with a lease.

Usually they will not even consider an offer unless the contract and all disclosures are signed by the buyer and seller.

., so would consider an exception.  

Happens all the time in my market, feel free rerun your numbers and make sure you're not being too optimistic anywhere, but I don't typically consider an appraiser's opinion too highly, especially in a market that I know well. 

Should I consider an ADA Bath?  

There are no laws regarding lending money to private individuals, although if you are trying to start a business you might consider an LLC as a way to protect your personal assets.

consider an Uncle a "related person" ?

Consider an inexpensive domain leading prospective residents to a free WordPress site where you can control the reviews, the content and even list your available properties for rent/sale.

At this point, you will have a realistic idea of what you can pay and how likely he is to accept it (based on what he owes) and can talk to your friend and determine if there is any possibility of working out a deal.If he won't consider an offer in your profitable range, then resorting to buying sub2 and pursuing a lease option is probably working too hard to make a poor deal work (IMHO).

I suppose while you are making the payoff request, you can ask if the Mortgagee would consider an assumption.