When debtors could not meet the demands of their creditors, they were forced to sell their homes and possessions, and with money unavailable even at the legal limit of 12%, prices of real estate and other goods collapsed since there were so few buyers.

I've found different lenders calculate DTI ratio when it comes to rental income differently.Some lenders take rental income (or a percentage thereof), subtract the mortgage amount, and then add the result to either the debt or the income.Others add the rental income (or a percentage thereof) to income and the monthly mortgage payment to debt.So, let's say a place rents for $4000, the mortgage is $2000, I make $5000/month, and I've got other debt of $2500/month.So, my DTI without the rental is 50%.Under the first scenario, .  

Then, there need to be no other debtors in line to collect the overage (or the laws have to support the former homeowner collecting before the junior debtor...maybe still on the books in some places but far rarer after the GFC).

No debt (or liability beyond your initial investment), nearly 100% passive, and offers better returns than most SFHs.

Some states do not allow cash out refinances to go towards personal debt (or up to a certain percentage can only go towards personal debt), and still be considered a "business purpose loan". 

That entirely depends upon if the lending activity even rises to the level of a trade/business: Scallen v Commissioner 2002 and Cooper v Commissioner TC Memo 2015-191the total number of loans made;the time period over which the loans were made;the adequacy and nature of the taxpayer’s records;whether the loan activities were kept separate and apart from the taxpayer’s other activities;whether the taxpayer sought out the lending business;the amount of time and effort expended in the lending activity; andthe relationship between the taxpayer and his debtors.

They are asking for a quiet title suit or a deed from the tax debtor.  

Are you talking to the lender about assuming the debt or are you looking to purchase the property via contract for deed?

If I had the choice between 40 units that make $7000 a month with debt or.... 10 units that make $7,000 a month without debt.

do you not like to have debt or just think this is a better long term strategy?