@Scott HurstEither what you have been told is entirely wrong, or being taken very much out of context.If your IRA owns rental property all cash, there are no taxes on the income, which all accrue to the IRA tax-sheltered. 

First, do you know how far behind he is and how much money it would take to not only cure his default, plus any late fees and additional accrued interest?

A friend of mine suggested that I open a high interest savings account (2%) for 10 days and I'll accrue ~$700 in the 10 days.

I know a truly incredible number of people who simply don't understand that the way they live guarantees that they will never be able to "accrue significant net worth," which is fancy talk for "making and saving more money."

We refinanced the property and paid back the private lenders and rented out immediately so we have funds coming instead of accruing interest every month.

Next, the remaining $92 is distributed as a return of capital--leaving $8 of capital (not accrued pref) remaining. 

We offer 12% annual, compounded and accrued monthly, for 3 years.

They will have a handle on what assets are on their “non-accrual” list (assets that aren’t paying and the bank is no longer accruing the interest on their balance sheets).

By the way, in Mass, unpaid judgments accrue interest at 12% per year!

Ugh.Perhaps some sponsors do it because they don't know how to accrue a preferred return properly, so if they just make the distributions they don't have to track it.