If it’s due to outstanding bills or late payments fix it.

As I was re-reading some of my loan documents, I re-read the pre-payment penalty on a loan and it's worded after the percentages:  "of the principal balance then outstanding shall be paid to the bank" - what is the percent prepayment penalty based on? 

The way some association loans are structured, owners might have to make good on their outstanding balance if they sell.

I know for a fact that there is $31,800 outstanding on the mortgage.Any thoughts?

You may have only one general purpose loan and one residential loan outstanding at any one time. 

. - Outstanding amount I'd go after him for is $19k. - It's my understanding that someone else took him to court and won (2-3 years ago?)

I've been digging deeper and the association was able to foreclose on the property for unpaid assessment dues back in 2016 while there was still the outstanding mortgage.

Regarding taking a 401k loan: You would have to confirm that your 401k plan allows for a 401k participant loan (and that you have not had an outstanding loan in the last 12 months).If yes, you can borrow up to 50% of the balance not to exceed $50,000.The repayment terms are equal monthly/quarterly payments (as you prefer) of principal and interest (e.g. prime + 1%) spread over a 5 year term (or longer if you will use the loan to purchase your primary residence).

The outcome was positive and outstanding Lessons learned?

In general, homes purchased with high LTV in Detroit 10 years ago would not have positive cash flow today.To me the track record on San Diego long term appreciation seems as likely as a city's track record of cash flow but I realize that the past is not always an indicator of the future (in both cases).I have purchased cash neutral RE which has produced outstanding return.