Legal Question in Real Estate Law in California

You're not a party to these people's dispute with the bank, but since you are lending to people with bad credit, you should assume you won't get paid on the loan you plan to carry.

My thoughts exactly. The previous lender can't come after you, and probably can't come after your would-be buyer either. Your deal makes sense IF you get a big enough down payment to make it impossible, or nearly so, for the condo to slip into a "no equity" position that will tempt the buyer to repeat is walking-away exercise. I suggest you check the estimated current market value and recent trend of your condo by looking it up on Zillow.com

I agree with the previous responses. My only addition is that if you carry financing, it should be secured by a deed of trust on the property. You should be aware that in doing so, you are subject to the purchase money anti-deficiency prohibition in Code of Civil Procedure section 580b. I would advise you not to subordinate your deed of trust, and to be very careful about your valuation of the property in the sale, as you would not be able to recover any deficiency after the buyer defaulted.