You could however borrow it from the owner finance note holder, but that is a rare occasion. 

My question is does the seller become the second lien holder in this scenario?

You could get the house under contract and get an authorization to release info to be able to talk to the lein holder and then start negotiating with medicaid lien.  

.$100 for the search seems better than $3-15K for a lost deposit.Plan is to narrow down to 2/3 parcels, have the due diligence research completed, go to the auction with firm maximum bids, Win (at least something), either recoup my bid plus interest if a lien holder wants to maintain interest or wait the redemption period, go through quiet title process and either sell the property/ keep it if it requires little work.Any additional advice would be greatly appreciated.

For me, syndication can also be a great opportunity because with it you are just one of many investors (typically as a limited partner or unit holder) and can make a solid return.I have managed my own properties in the past but now value my time more so turnkey gets me there.

If the property is paid off, you can take out hard money to borrow the rehab costs, and have them as first position lien holders.

Now you are a stock holder. 

now I'm happy some people involve in this topic, I don't know anything about real estate in USA, a little far for me, I haven't visited it also, difficult to get a visa, also not cheap for me to visit this country, so I put my point in southeast countries, after visiting these countries, I compared with Chinese real estate, now in china, esp some big cities such as Shanghai, Beijing, Guangzhou , Shenzhen etc, very expensive to invest, so when I found the market in southeast countries cheaper than in china, thats why, I began to invest one in Bangkok in 2014, after I got my condo in 2015, I bought the furniture package, I rent it out every year, I found a good profit, about 6 percent returns, another one in Pattaya for holidays, still not finished, anyway compared Thailand and Philippines, all have advantages and disadvantages, just depend on u, now the price in Bangkok is a little high, if only investing, I think Manila is better than bangkok, more return in rental!

But, i would still contact an atty and see if what the sellers/loan holders did was even legal. 

I got a few no's before  a visa said that they call this a balance transfer.