It might be okay if you got the loan and deed in your partners name and the intent is to actually occupy the home for a period. 

You can do it because you're replacing the windows because they're old and useless, you're not replacing them with the intent of passing a lead inspection.

I only stress this because in my experience there really are no bad people, no one is really trying to scam you and you can assume everyone has good intentions. 

They had no intention of buying.

Thanks Nick,Totally agree, and that's my intent, in fact been there for many months now ..... but the million dollar question is - is that enough for the IRS?  

Their true intentions come out eventually.Be sure to read through the rules of the forums here.

For the sake of clarity, I have ABSOLUTELY no intentions of throwing away the remains and also have no problem storing them until I can find a resolution to this problem.  

And Ned is correct, the loan must be non-recourse.Also, if your intention is to flip the property - this is likely to be considered an active business and therefore Unrelated Business Income Tax would apply.There are handful of banks specializing in non-recourse loans, you can PM me for the list.

or are you talking about fixing and flipping to those looking for rentals. ( IE a boutique turn key provider).there is a huge difference in the mid west or cash flow markets when it comes to fix and flip retail... if your priced out and think your going to move west to find those cheap properties that are usually rentals and then fix and flip them.. that in most instances won't happen.. the amount of properties that sell to homeowners these days below 100k is pretty small.. the vast majority of these are bought by investors for rental purposes.Of course there is exceptions. but generally what I see and fund are fix and flip retail at the 120 to 200k end price... and much higher  like Texas we focus on buys in the 150 to 200k range and exits at 300 to 500  same with charleston SC and Portland were I am pretty active... rehabbing from afar as a civilian  IE someone who is not really versed at it is one of the riskier things you can do.. there is so much that can go wrong. even with the best intentions.   

Not to mention calling into question their intentions and knowledge about the same.