The only tough part is that your loan amount is small.

The foreclosure would have to be redone and the missing interested party must be given their right to redeem which includes the statutory time to do so.A second lien doesn't need to be paid at all if the first forecloses.  

Mark Ainley Catherine Dickerson Mateo Carrera Crystal Smith Heather DeGeorge Alison Robinson Jaime Frausto Sorry for getting to the party so late, I just put in an 18hr day at my J-O-B lol, but thank you all for taking the time to share your input and experience with me!

We do operate within an LLC, but our arrangement for the rehabbing is a Joint Venture, with the other party also operating as a LLC.  

And it turned into a huge mess because the original (incorrect) contract was already signed by both parties.

In giving a right of first refusal, the owner of real property promises that if he decides to sell, the holder of the right will receive the opportunity to match the actual offer that has been made to the owner by a third party or, alternatively, the owner must first offer it to the holder at a fair market value before he places it for sale.

Auction .com generally has 4 different scenarios for listed properties on their site.1) REO2) Trustee sale where auction.com is actually acting as the trustee3) Other foreclosure auctions where they are not involved at all....I've seen these more frequently in the last year here where all our foreclosure auctions are judicial, and done online thru the county clerk of court sites, using a third party platform (not auction.com).  

My question is what is the best way as far as avoiding paying the highest taxes for both parties to make this transaction?

Otherwise, it creates all kinds of problems for all the parties...as you're now seeing.At this point, try to settle things with the first guy as best you can. 

So let's say 4,500 to be conservative.