Default on both and hope they don't pursue a deficiency.

We walk through the property with the Tenant, identify what is deficient.

Why wouldn't you get in there and negotiate hard on these deficient homes and make low offers that create large value add spreads? 

Most of these markets have a deficiency in skilled labor.

Question - Is Eastside likely to accept the deed in lieu or will they be more likely to move forward with forclosure and pursue any deficiency judgement in court?

The repair of these deficiencies could be costly and it isrecommended that the buyer get an appraisal from a certified mason before the end of his offer topurchase condition."

Please consult with your own attorney for legal advice.Because you state you are in CA, I assume your rental is also in CA and that the rental is a dwelling unit for the tenant.If you (1) notified the tenant in writing of the tenant’s option to request an initial inspection and of the tenant’s right to be present at the inspection, and (2) if the tenant requested an initial inspection, and (3) if the inspection occurred, and (4) if at the inspection you gave the tenant a written itemized statement specifying repairs or cleanings that you proposed to be the basis of any deductions from the security the landlord intends to make (and all statutory notices), and (5) if the tenant had the opportunity during the period following the initial inspection to remedy the identified deficiencies, in order to avoid deductions from the security, and (6) if the tenant did not remedy the deficiencies identified in the itemized statement, then, you may withhold from the security deposit sufficient amounts to pay for damages including damage from smoking.

@Dave Foster I will deficiently lawyer up and get good insurance.

In either case the borrower retains liability for paying the loan, and can of course be sued for any deficiency upon default - assuming a personal guarantee.

The benefit, if any, could be that the BK could relieve the borrower from any deficiency if there was any.