Is that a legitimate excuse for his score being so low?  

Whats my best option to invest in his soon to be foreclosed house with very low money down?

BTW, estimating expenses as being 30% of gross may be too low.

They foolishly think they need to keep the rents low to hold onto "good tenants".

I have seen folks try for years to find these mythical private lenders and never do a deal because they can't raise a dime.what the OP is looking for is an asset based lender.. and those are not very common anymore.. especially if you have to find one on the internet means you don't have a track record and have little to no chance of finding anyone who is going to 100% your deal.. unless its just such a low LTV that they are making the loan with a better than 50% chance of owning it when the borrower can't pull it off because the borrower is not experienced and can't execute.  

I've read about an 8-11% discount from the listed price, as well as going as low as 15%, primarily on properties that are fresh on the market.

Your first mistake.Second, write into all future lease agreements that "Tenant agrees to be responsible for all pest control" and prior to them moving in make sure it is absolutely clean and free of pests.  

I am no expert, but what I do not see in San Diego is how we get from the present extremely low inventory levels (especially on the coast and the lower priced $800k and below market) to an excess inventory level which I believe would have to be a precursor to any significant price drop.

Buy low, sell high.

@Codi Tripp I can't say that SC is the best, but both the Charleston and Myrtle Beach areas are absolutely exploding right now.