There is simply too many vacant properties and not enough new listings/reo's to go with them.

I checked with Satchie Carvounis at Security Trust and she confirmed that: No the IRS rules don't address this situation, it simply states that the IRA can't engage in any transaction with a prohibited party.

Perhaps it's a regional thing and it's simply not common in SoCal.

One quick note, I believe you're referencing the 2% rule, not the 50%...The "50% rule" is simply that you can expect 50% of rent to go towards expenses...The 2% rule says to target properties where you can get monthly rent equal to 2% of the purchase price.

Then the newbies walk away dumbfounded on why they didn't win and why the bank bid so high.

I don't see a win - win situation and these people are taking advantage of you and your money.

Doing the option correctly, means that you would need to record an memorandum of option with the county recorder, to demonstrate that you have equity in the property.This is a win win, the family gets the money they need ASAP, and you have the opportunity to sell and maximize your return on investment, while never "owning" to the property.Like JD Rockefeller said: "Own Nothing, Control Everything!"

That simply proves the lenders aren't terribly concerned about looking for properties changing hands.

Does the current occupant need to come up with the funds to pay off all of the existing debt or do they simply need to come up with $60k to redeem?

If you file to evict and then tenant does not answer to the court you can get the writ to evict but not a judgement.In that case you have to take them to small claims court and win to get a judgement.Now if you already have the judgement against them you have a few options.You can file the paperwork yourself for bank levy or wage garnishment.Or You can use an attorney that charges hundreds per hour.