Places like California have some very strict laws about contacting homeowners in foreclosure.

We usually give one chance if they communicated why it was delayed without a late charge but after that we strictly enforce the $50 fee for anything 5 days late

. -  I'd try to talk them into strictly being a HML for the deal. 

Not sure it's that easy anymore, though, as there are definitely more strict procedures in place now and we've found that most after auction are listed through real estate brokers or sold off in package deals rather than a single home being negotiated by an investor directly with the bank.      

There are very strict laws in the state about family violence situations so your hands are tied in many ways, but who knows if he’s going to stop paying the rent any day.

That's if you are strict on your criteria. 

Appraisers run a pretty strict formula so you need to show how they missed something or like Tim said above, find the value add that they missed in their appraisal.

@Francis Pickworth My recommendation is to invest outside of California due to the strict landlord/tenant laws.

It is strictly a loan program for owner occupants, so one of the buyers would have to be buying the property as their primary residence. 

Remember that you will need reserves and underwriting may get more strict in the 5-10 loan range.