Doesn't matter if you don't make money.  

It doesn't have to be exact, you just need to make sure your margins are big enough that it won't matter too much when something goes wrong.  

It doesn't matter whether the owner lives in that house or is an absentee owner living in another state.

They are going to  want a bank statement or something showing you have the funds liquid in a matter of a couple of days.  

Does it matter if the lender is in the same town/state as the property?  

I was told by the city because he is challenging the validity of the sheriff's sale it is now a civil matter.  

I guess it no longer matter as the home in question was snatched up a day before I put the bid in!

My thoughts are that they would need to be rescreened based on the income of the two people as only two people would be moving in before they find a 3rd roommate and resign a new lease.I'm trying to figure out the best way to handle this situation as I'll be letting some people down no matter what I do.  

(my attorney in fact told me this, however I have no experience in the matter, so am seeking further opinions)

The ONLY reason to buy there or in similarly bad neighborhoods like Arbor Hill in Albany or Crane St in Shenectady, or South Troy for that matter, is because you can easily get 15+ cap rates and 30+% COCR because most of us would rather not have to wear a helmet when collecting rents.