If I let the foreclosure process start to take place, and have the borrower (my grandmother) willing to work with me, would it be possible for me to purchase these notes before foreclosure at the usual discounts?

Thanks @Joe Gore I've been on biggerpockets for a couple weeks and I have gained tremendous amount of knowledge.

The lender won't accept a discounted payoff if the property has equity.If the property is worth $170K or more, then the seller will need to sell for $170K or bring cash to closing for the difference.

You don't need a lawyer for small claims, document everything you can and get a judgement...ask for the max, don't discount anything. $3400 sounds low for all that.

Perhaps give away (or steeply discount) a few lists to get some positive feedback first?

Even at a substantial discount the property tax would eat you alive and result in negative cash flow.

I'm sure your tenant would LIKE to have that convenience but sounds like too much of a hassle, cost + maintenance on top of that for it to be as viable as it appears.You could always tell the tenant that if she renews the lease at $550mo (which was what you were going to re-rent at anyway), and pays on time, she will receive a $25 discount that month to apply toward laundry expenses.

Also, I wouldn't classify a seller as "giving away the house" at a discount of 10%.

It was a duplex and a single family that made up the other two and we had to severely discount them due to their cash flow.

A similarly-sized single family home is going for $675,000, so we are pleased to be in the neighborhood at a discount and rent cover a good portion of the mortgage.