You can have two perfectly honorable parties trying to be fair with each other but when you are not on site you do not know what your contractor finds and pictures don't tell the whole story.  

Having two parties in the middle makes for a very convoluted transaction.

I made him a casual offer and wonder how I can legally do the following to purchase the property as a rental/investment property.Transfer the title to a third party.

If the bank Did go through withe foreclosure(went to auction) then either they got title, or a third party got title, and their mortgage is no loner a "lien".  

The broker didn't ask for anything out of the ordinary/suspicious, except to tell me that I would need to pay for the appraisal when it occurs (rather than at closing) bc it's done by a third party.

(and yes, both parties would see what you're making...)Seems like going to an extreme to arrange for transactional funding and a special double/simulatneous closing just to obscure your profit.  

I'd agree on doing the homework part. I

@Philip Williams I agree w you on fix n flips in Rockford for the most part. I

Seems it could be very beneficial for both parties, but it also seems like one party could get screwed if they aren't really on top of things and there partner is ethical.

You can set yourself up to lend first or second mortgages to third-parties - either from cash-on-hand or from a registered plan (ie. self-directed RRSP).