I think this arrangement can suit both parties, he wasnt going to be able to keep the house but can still live there for super cheap.

The auctions, although online now, are live foreclosure auctions, i.e. the auction style sale which is the culmination of the foreclosure process. 

I haven't lived in it long enough to be exempt from capital gains, good point on that.

My suggestions:* Requiring code compliance and safety equipment is absolutely valid and should be part of the regulations* Requiring owners live within 15 miles is not necessary since poor hosts whether they're local or distant will violate the 3-5 warning system and earn a suspension.

Additionally, I am beginning to believe you don't live there to be the "house monitor" as this seems to be going on for a time period. 

Downstairs 2br 1bath unit we are living in.

I live on the east coast.

My credit should be the highest allowable also and I shouldn't have problems with approval.Ok, i shopped about 80 lenders (based on Fridays rates, market is closed so no live pricing)Conventional Full Doc loan you would be at 7.875% if you put 20% down (you said what the house was worth, but not your purchase price). 

Quote from @Brendan Doherty': I’ve read in books of people getting past having to live in the property they own so they can rent all units year one of ownership(living on the property with an rv).

I live on the west side of London and would be happy to connect and learn more about your goals and see what I can do to help.