As far as the hole, the Tenants says problem has occurred before/fixed before now its  a problem significant enough  to have occur again which means previous owner fixED the problem, did not disclose and ROOFSTOCKS BPG INSPECTION/RE-INSPECTION DID NOT CATCH THE PROBLEM  which was clearly brewing during the inspection period .Luckily for rootstock and the inspection  they have plenty of loopholes and outs for situations just as this. 

Since you live in CA, I would read "Loopholes of Real Estate" that books goes over a TON of helpful asset protection stories and situations.

In 2017, the Arkansas legislature attempted to eliminate this potential loophole by stating that the ownership exemption did not apply if the person “[o]btains an equitable interest in real estate with knowledge that the interest was obtained on behalf of a person or entity that intends to gain an interest in the real estate other than that of ownership.”

To add further context to my situation, the reason I was targeting and interested in STR specifically, is because there is a certain tax loophole strategy which allows for w-2 employees to offset their active w-2 taxes with the passive losses of STR (no need to be a qualifying Real Estate worker like with LTR).

Just want to see if there is any loop hole if you pay out 20K for 1K tax lien and owner is not able to pay, would you be able to foreclose on the house.

If that was a loophole that would be great for me.

Having a background in the tax industry has taught me to look for completely legal loopholes to use to my advantage - NOT to look for ways to commit fraud.

And you can't tell them the insurance won't allow it because yes it they do the insurance allows a trampoline you can't just Swindle them and add things in it is against the law there is no loophole here they already signed the lease you never specified no trampolines that is all your fault on your end and you don't need insurance to have a trampoline understand that right now it's all you can do is learn from your mistake and next time if you don't want somebody renting from you that possibly could put a swing set or trampoline on your property then you need to put it in the lease not tell them anything if you tell them your insurance won't cover it then you are literally crossing a line where they can sue you if you add it into the next lease they can sue you this is something that should have been brought up since day one before they signed the lease to start with and understand if you're renting a house that backyard's not yours while they're renting it that is their backyard and as long as their backyard is picked up and not dirty or filthy and have a whole bunch of stuff all over the place especially if they have kids a trampoline is completely legal especially if it's got a net around it if it doesn't have a net around it then you can say you need to put a net around it that's the most you can do specially because of trampoline with a net around it is completely 100% legal and follows all guidelines unless they're older children like teenagers then they don't need a net around it I'll repeat this one more time legally if you are renting a home and you didn't specify since day one then there is nothing you can do now learn from that mistake and if you don't want nobody ever doing it again then you have to tell him in the lease not tell them to their face it has to be printed in their lease from day one and you can't just change the lease and say no trampolines on their next one nor can you kick them out for a trampoline as long as they're cleaning up all the toys and stuff that's not technically a toy so you understand that it's not a toy it falls under more of exercise machinery and you can't deny people that

Do you know any loopholes to these types of rules or am I crazy for even trying to do this strategy?

Well I first thought you could make a loophole by starting a property management company based in DE that you run.