We borrow from our equity at 3.5% annual interest. 

She really wants to get out of the house so I contacted her borrower for a pay off less than what she owes.

Is this risk capital (cash or borrowed? 

@Tim Vecchioni, basically, IF a fair ARV for it is $250k, then yes, your all-in cost (including ALL your private borrowings and rehab and holding costs) would need to be no more than $175k (not $201k)! 

Lenders want the borrower to have their I cash in on a deal to protect themselves and lower the risk on investment.it doesn't hurt to ask around, you might get lucky.

A year later when the borrower tried to refinance, he was informed by the title company that he did not own a very small but important partial tract of the property.  

If the borrower is financing a second home or investment property that is underwritten through DU, the maximum number of financed properties the borrower can have is ten.

Until I am comfortable I know the skill set of my borrower I will not participate in the project unless they put some of their own funds on the line.

The first step after receiving the purchase contract And the borrowers completed hardship package, is determine if the borrower qualifies.  

A buyer utilizing this type of contract should be more experienced, have more capital, and have a higher risk tolerance than a buyer executing a contract with a loan contingencyI use the strategy of offering a purchase contract with no loan contingency on most of the property I buy since at this stage of my life I don't utilize borrowed money.