Are they wiped if surplus is not enough to pay the total lien amount and the lien holders were properly notified about the auction?

This structure allows account holder to bypass the custodian and obtain checkbook control over their retirement moneys. 

You need to find the owner first, not the mtg holder, to get anything done.

Which is one of the reasons we do not participate in this program and also why voucher holders are often limited to finding only poor choices for rental properties.Gail

You mentioned a ground lease so I assumed you have a leasehold interest and at some point it expires and the fee holder would take back the property and the improvements.I have done two condo conversions and the first attorneys wanted to charge for 1031 exchanges and some paid for it.  

When that happens, I'm assuming that the property will need to be refinanced so that my SDIRA is not the note holder of the property..

Basically he has an automated system that does all the legwork and you get paid a fee for being the middleman between a note holder and note buyer.

Robert even then the bank and ALL junior lien holders have to approve the purchase price and what amounts they will release a lien for. 

If your goal is cash flow (in my opinion) you're better off trying to buy with owner financing (contract for deed - land contract, installment sale, mortgage wrap, promissory note with a first lien holder position on the trust deed for the seller (if they own it free and clear), or sub2.

While some would hope they don't get caught during the option time period, the ethical thing to do would be to approach the loan holder and get approval to continue with the status quo until the option exercised.