You still have to pay taxes and up keep/maintenance etc.

He already has his mortgage - so, a blemish on his credit really won't negatively impact him.All you could go after is his bank account and state tax refund:(

things missing in your list (everyone manages differently, so take it with a grain of salt)Vacancy rateTurn overbad debt legal fees (evictions as needed)accounting fees for professional tax prepmaintenanceProperty TaxesSales Tax on PM fees (In NM, this is charged, not sure about where you are)Reserves for replacement CAPEX - furnace, water heaters, ac, roof, parking lot, etc.Admin, software, advertising, etc.Cost segregation study for accelerated depreciation captureAs for your loan. 

(this will help with mindset around investing)Tax-Free Wealth by Tom Wheelwright, CPA.

No down payment means you invest for nothing, take advantage of principal paydown and tax advantages and maximize your BAH to do so.

Thanks in advance ;)  pay the tax. eventually will have to pay it anyways - rather pay tax now vs. buying a bad deal

Or, rather, what the tax code said. 

For tax purposes, it's considered a reimbursement for property damage.

I recommend learning a bit on how to read the financials, but find yourself a great Accountant to help you analyze the financials and tax returns to make sure things make sense and are proper. 

B) Worst case is I sell my current home, move into the foreclosure, live in it for 2 years, and then resell without the capital gains tax hit.