Total failure. 

The only attraction I can see, the lien holder is guaranteed a total  minimum interest of 5%, ie. if they bid the rate down to 2%, and the lien gets paid off in a few months, the certificate holder still gets a minimum of 5%. 

This can be done two way:1) Don't get a loan and just pool in 20K of your own cash2) One person gets the total loan, and he/she be compensated for the recourseSome of the responsibilities can be: Funding, LLC formation, negotiation & purchase, Rehab & GC, Resale marketing

Yearly premiums are being paid upfront at settlement for a total of $1573.

I'd be content with consistent 10% ROI.  

On the Preliminary Disclosure (Line 520 on HUD1) the total reduction amount due to seller is $638,800 (1st and 2nd Mortgages with closing costs).

A property you purchase specifically as a investment to be used exclusively and totally as a rental property is business use and must have rental property insurance coverage (landlord).One is a Home the other is a Income Investment Property.

Again totally new and don't know much!

Your total equity in the property is your cash investment.Cash on cash is only accurate for the first year since mortgage pay down and appreciation change annually.

This would be your total recoverable amount should you foreclose or should the borrower refinance or pay off the loan, assuming there is enough equity in the property to cover the total amount.