Sub situation
 

12 on red goes to line to shoot 2 freethrows. White coach calls timeout. After the timeout 12 red goes to line to shoot the 2 freethrows. After the 1st throw the white coach now wants to sub 20 into the game. Is this legal or should they wait for play to resume.

Of course it is legal. And it would be legal if they came in before the first FT after the timeout.

The only way it would not be legal is if 20 came out of the game after the foul was called and did not sit for a second being run off the clock before trying to come back into the game. But that is not what you said happened.

Peace

Because the white coach did not get the sub to the table before the first horn during the timeout, he has to wait until the next legal opportunity to sub. The next legal time to sub in this situation is before the last free throw.

For The Good Of the Cause ...
 

Legal.

It's not my intention to hijack this thread, but the fact that multiple free throws are being shot here brings to mind this rule (below) limiting substitutions, but, of course, it doesn't apply in this situation, but some nonofficials are occasionally confused by it:

During multiple free throws resulting from personal fouls, substitutions
may be made only before the final attempt in the sequence and after the
final attempt has been converted.
EXCEPTION: When a player is required by rule to be replaced prior to administering
the free throw(s), then all other substitutes who have legally reported may also enter
the game.