Tell him you are entitled to possession because of the tax sale.

As both first in line and (usually) last in line, they are in a unique position to gain possession of this property.  

Bear in mind that a 203k property becomes eligible for the program because it would be otherwise uninsurable on a regular mortgage-- houses end up in HUD's possession for a reason, and they're often ugly ducklings. 

Then you find a buyer who is willing to pay $130,000 for this property so without taking possession you assign a contact to a new buyer and make $30,000 profit.

If, after the Leaseexpires, Tenant remains in possession of the Premises and continues to pay Rent without a writtenagreement as to possession (and Landlord accepts such Rent), then the tenancy will be regarded as amonth-to-month tenancy, at a monthly rental of $3250.00, payable in advance, and subject to all theterms and conditions of the Lease.We have given more than sufficient notice and we will not accept the rent payment.

Once the bank takes possession of them after sheriff sale, they may prefer to use the auction as a stalking horse for where to list the property on the MLS.

I have land in my possession and need to know if IRS like kind rules allow me to construct a duplex on the property. 

Does the security deposit only factor in after we win possession and assess the unit's condition?

I have found a property for $295k in a nice neighborhood with an ARV of $385k the seller acquired through adverse possession.

@Khang NguyenAll of the renovations you performed prior to putting your property into service should be capitalized .... it matters not that the property was in-service under the prior owner, you took vacant possession and renovated prior to returning it to service.Additionally, much/most of the work performed during a substantial renovation is considered a capital expenditure, not an expense.