If we have the risk-adjusted returns, we can take more of the up side by doing a 50/50 split after pref.  

Can you make a lump sum payment to the bank for the escrow shortage and then have the payment adjusted to account for the higher taxes, but not covering the additional escrow?

Good location, appreciation not guaranteed for the next several years.  895k asking price. 101k gross annual incomeExpenses: Insurance: $4,898Electric: 2,579Water/Sewer 5,085Fire Alarm Connection 708Property Taxes (if/when assessment is adjusted to sale price)-31,95130 Yr mortgage (20% down at 7.75%) 61,560Maintenance, Long-Term Capx, vacancy- 9,000 (this is probably a bit low)Total annual expenses: $115,781

If you do that, they can adjust your escrows back to normal. 

If not, what do you need to adjust to get back on track?

If you realize profit, sales price - purchase (and some adjustments for closing costs and capital improvements), you have taxable income. 

There are far fewer ARM's (Adjustable Rate Mortgages) than there were in 2007/2008.

You must execute and then adjust when needed.

If they can't find those things, they will go out a little further (start at 1/2 mile, then mile and so on) Then they will make adjustments to bed/baths/sqft.

However, the method of handling the 1099 income on the tax return may vary depending on the circumstances and interpretation of tax laws.The approach your CPA has taken, where each property is reported separately on Schedule E and then adjusted on a statement for property 3 to match the total 1099 income, could be viewed as a cautious approach to ensure compliance with IRS reporting requirements.