He has ties to a development company and construction company but it doesn't appear they either has been active on any projects in several years. ( nothing the great google could find at least) I want to approach him and see if I can strike a deal on the property he is holding (which he has missed his last tax payment on.)

In other words, have your entity ownership worked out BEFORE you put a property into it or it may become more costly later on....Pittsburgh has transfer taxes higher than 2%, and splitting it equally is customary but not mandatory (HUD and Fannie require the buyer to pay the transfer tax in full since they are exempt from transfer tax payments).

The taxpayer must still meet the ownership and use and the one-sale-in-two-years tests of Secs. 121(b) and (c), and under Sec. 121(d)(6), gain cannot be excluded to the extent of depreciation adjustments attributable to periods after May 6, 1997Audit points: You could argue they were necessary, but generally remodeling is not considered a need and arguing with the IRS is not a good idea (more on that in a minute).

UBIT is a tax designed to level the playing field so that tax-exempt entities do not drive taxpaying businesses out of business.If a tax exempt such as an IRA engages in a trade or business on a "regular or repeated basis", UBIT applies.  

But it is important to remember that when doing a 1031 exchange the tax payer for the property being sold must be the same as the taxpayer for the property being purchased.  

Recharacterization DeadlineThe deadline to complete a recharacterization generally is the taxpayer’s tax return due date plus extensions for the year for which the contribution or conversion was made.

Even though you have not held the deed to that property my guess is that the CD would be looked at by the IRS as "risk of loss" passing a long time ago and that your the beneficial tax payer for the property and what you are doing is simply refinancing a property  you  own - no tax.  

See Subsequent Tax Payment Information.In cases where there are no bidders on a parcel, the County, as Trustee for all taxing bodies, becomes the tax buyer at 18%.

For example on my old McKinney house the principal and interest payment would come out to $1540 per month and the monthly property tax payment would be $685.

And in the number of Tax Audits I have handled for clients, believe me, the Agent was not the least bit interested in the taxpayer's intent, only what he actually did.But it is good to have a diversity of opinion, so the members can decide for themselves.