@Joseph Tarallo rest assured we are looking at two different properties, I'm in California.

Like the bank you are requiring assurances against unforeseen losses at the home.If you receive push back educate them that the bank requires a Home Owners policy on a mortgaged property.  

I'm a bit hesitant due to the location, however, your thread has given some added assurance.  

You can get estimates from different title companies, and home owners insurance companies to shop for the best rates and prices and provide them at the application process to assure your estimate is Fairly accurate.

I would not make the letter say anything about any issue but rather just say you're interested in buying if they are interested in selling.The issue of a new investor getting involved in a loan modification or catching up payments is having the bank assure the owner, in wrting, that the loan is to be reinstated, you could lose your money getting them caught up and then the bank just saying thanks, but you're still in default.

The advantage to lenders is that they are assured that the first mortgage will be paid.

Though I can assure you that your cash on cash return will be significantly higher following through on this process.

The current owner has a 92K remaining mortgage and assures me in  our discussions, he will hold the remainder in paper.My dilemma is, If I pay him the 92K, then I have to come up with it.

Our attorney assured us we did nothing wrong, so we would never lose — BUT it could take up to 9 months and $15k in legal costs just to move past it if Bob persisted.At that point, we decided to have a “do over.”

I will typically look for a decent make and in decent condition to assure it'll last me a long while.