Then the remaining balance due in 5 years. 

If your lease states payments are first applied to late fees and court fees, then the remaining money goes to the actual rent, you can do that.

My current focus remains wholesaling in the NYC and Northern Jersey areas. 

Just to clarify a couple things that I misrepresented above.I would live in for 1.5 years because of this-Reno then refi after 6 months while owner occ for best terms, then stay for remaining seasoning of 1 year before I rent it out. 

-may remain.  

If so how do they lend money ( what kind of collateral is required)I can raise the remaining 80% and pay off the sheriff office, and later can i apply for a home equity loan ?

I'd be willing to fix everything up, satisfy the DIHLR stipulation and even have my property manager get a solid tenant in place for a few dollars more :)  I highly suggest looking in the Janesville/Beloit area, I'd also recommend a property manager if you are further than a 30 minute drive, they are well worth the $50/mo.

Remaining a renter puts you on the right side of political will.- Because of the way rent-value ratios tend to work in coastal cities, you can very likely rent a better house for a lower monthly cost then you could own.

He brought about 40% of the cash to the deal along with the labor and I brought the remaining 60% with some personal labor (mostly yard work.) 

As long as the bank is getting paid each month, they should be satisfied, but every bank is different.