I would have thought that lenders would only be concerned with the credit-worthiness of the borrower and the market value of the underlying collateral, and not how much the original purchaser (flipper) paid for the property?

bank is now looking at the collateral and the numbers on the deal not so much the borrower.  

But with a personal guarantee, the process is much quicker if you have at least a 680. 0% interest for 6-18 months, stated income, and no collateral.

And how did the lender legally lose their collateral on their previously secured loan?

Due to the high cost of keeping properties in tip top shape, they often don't return a lot of cash, but 10-15 years later they can be sold for a large profit.3) Lenders like them because if they have to foreclose, they're getting an excellent piece of collateral vs. a dump.4) Tenants expect the best service as well as amenities such as high speed internet, pools, gyms, and professional landscaping. 

You can bring in private money to provide the down payment as a 2nd lien or collateralize another asset (usually a property) for the down payment.

@Ramon Moreno, if you're giving money you should document that with a Note, and if you're going to secure the borrowers obligations with the property being used as collateral, you'll need a Mortgage.  

When cashing out with a conventional lender be sure to have the safety and collateral issues repaired before the appraiser comes out.

I am definitely not saying all, just many that I know.2. the rate if return is low for a 2nd position 3. the way this reads, it sounds like this is essentially a loan to get you the down payment money you don't have. that will be a problem for your lender (they want you to have skin in the game) and it is likely an issue for this private lender (again, in this situation you don't have skin in the game)4. you may find someone that would cross collateralize your first property (essentially take a second on it homes) so that might be something to think about.5. and last thing, I promise:) have you thought about borrowing from a family member?

Someone has to either 1) Open probate to facilitate sale of assets, or 2) Secured creditor(s) such as mortgage or automobile lender can seek the forced liquidation of their collateral.