Kestrel has the tax point right, and it changes your deal. Property tax liens generally take priority over mortgages recorded later, so that arrearage comes out of proceeds ahead of the first, and priority rules vary by state.
On the HELOC: yes, junior lienholders in a real wipeout position will sometimes accept a discounted payoff, and that request is called a lien release or short payoff. It's a written negotiation with a loss mitigation department, not a phone handshake, and you need signed authorization from the owner to have the conversation at all. Two things it depends on. First, whether the junior actually is out of the money, which you establish with a defensible valuation, not your ARV. Second, whether the debt is recourse in your state and whether the lender thinks it can chase the borrower after the sale anyway, because if it can, the incentive to discount collapses.
Run your numbers again. 320 ARV, 35 rehab, 241 first, 46 HELOC, 7 mechanics lien, plus taxes and accrued default interest and the lender's foreclosure fees, which on a file this far along are not trivial. You're at or above value before closing costs. There is no equity for the owner, so the empathetic offer you were going to make doesn't exist here, and you should say that plainly rather than tie the house up while you chase a discount.
The exit that fits this file is a short sale with lender approval, which is a different timeline and often runs past the auction date unless you get the sale postponed. That's a slower business than pre-foreclosure buying and it needs the owner represented properly. Get a real estate attorney involved before you write a short sale offer with a foreclosure clock running.
