Most of the other auctions went for assessed value or over.Did the 3rd party bidder just get lucky or are there some other factors that I'm missing?

If you want to avoid realtor fees, you'll need to have an real estate attorney or a settlement company attorney (also a real estate attorney) draw up the terms for the seller financing and the purchase contract along with the note and mortgage documents that will be made and signed by both parties at closing.

Thats seems fair as either party can simply vary the option terms e.g. reduce or increase monthly lease.

The records are all public record but your end buyer will most likely want a report from a certified title examiner (and 3rd party) for their own security.

The hardest part is finding the deal and getting it under contract. 

Instead, lend as a separate but affiliated party.

I will provide them a recent bank statement showing a balance greater than $300,000 and offer to pay a year of HOA fees in advance, and I will offer to have a third party investigator do a background check on me to prove that I do not have a criminal record, given that I am paying cash there is no logical legal reason why they should refuse my application, but this application process may have little to with the law.

As above, I didn't take advantage of the older lady and raise her rent to $600, because she is unlikely to move, I simply provided a "fair" price for both parties.

Members can not pull reports for third parties

This allows me to have a deed of trust recorded if I need to use third party funds.