There can be specific issues that can cause the distribution to be taxable related to partners having enough basis / debt basis to distribute the proceeds. 

No more messing around.If they get out without issue, fix and clean whatever was done and thank your lucky stars you got out with minimal problems.

@Izraul HidashiIn general:Investor or certificate holder -> underwriter (creates the certificate) -> Depositor (issuing entity) -> Seller (purchases note) -> Originator (or creditor that created the note) -> borrower

Also, if this is a regional flood, Fire, Tornado or Hurricane issue; replacement costs will be even higher.F. 

I'm an independent agent here in AR and I write a lot of rental property, with ~6 preferred markets and if the properties have some issues, age, claim history etc.

It does however give you a degree of independence to choose what you want to do.As your portfolio grows you'll also feel the weight of future capex responsibility more, which ironically points you to growing more cash flow through more real estate.The other issue is that you are chasing a moving goalpost.

Does anyone here faced similar issue ?

I am thrilled to have access daily to accounting, tax planning, business planning and Law issues I can have addressed with a team that is working together to meet all of my needs.  

Verify its condition and ensure the seller discloses any known issues.

Class midwest issues.