Can the bank go after him for the existing mortgage or will he just never be able to take a loan out against the property with the existing lien? 

Like when you go to a bank and they charge you a mortgage doc fee.  

Note: the Amortization can be shorten if the property agent is older, some banks will go out to 25-30y Amort if the property is 1980s or younger.and will only go 15-20Y Amort if older then 1970s

Start by looking for hard money lenders and talk to smaller banks and credit unions.

Even ignoring the 'theft' risks, you have gift tax return exposure (and use of lifetime exemption), transfer taxes, no basis step up involved with gifting the property back and forth, probate risks if the 'buddy' passes away and didn't update their will for the property. 

@Karam A Tascoe yes its based on comps but I am more referencing your bank-ability.

It isn't that i'm not curious what the appraisal would come in at, but I will likely be getting one when i go to refinance in 6-18 months and all the value would do right now is: 1) Give me a more accurate idea of what the bank would value the property at2) Delay closing as appraisals are 3 weeks out minimum right now3) If it comes in high the seller could use that info to back out4) Add additional costs (around $950) to the closingP.s. - I will still be ordering an inspection.Thanks in advance!

My goal is to acquire as many houses as possible and become a mini bank.

The only restriction is that you must execute a direct trustee-to-trustee transfer. 

Both units are rented, and I have spoken to banks regarding a line of credit to use towards the purchase of another property.Community banks so far are not interested in giving a line of credit, but have offered refinancing options instead.My current rate on the property is 3.75%, so I'm not eager to move to a significantly higher rate (5.25%).