After going through the entire process to try and obtain a DSCR loan we were denied at the last minute.   

Your claim will likely be denied if the heat was off.

If judge denys, my question is if the previous owner does not claim the surplus money can it go to the 1st morgage so that when I do try and negotiate it will already include the winning bid amount? 

So far, it's been her saying she will pay or saying she tried to send payment, but the bank denied the transaction because of an NSF charge on her account. but it's just been us wondering when another payment will come through with her already past the deadline. uggghh.

Probably due to all the losses they've been experiencing with all the wildfires, floods, etc. of late.We even have a case right now that required the owner to sue their own insurance company, because the insurance company denied their claim on an alleged technicality.

You can deny on income qualifications.

However, if you're using a discount company that's allowing you as the owner to set the rent price, approve or deny apps, etc. then your issue could be one of many things. 

You could make a trillion dollars a month in your job and the loan will be denied if the property does not meet Self Sufficiency rule. 

Quote from @Denis Churchill: Wondering if community or national banks are not in favor of lending on 8, 1 bedroom duplexes.

What if I fenced the property and denied access through it?