Check with your cpa and tax accountant for the details and if they would support and defend such a position upon audit.

You will need to defend yourself.

I'm not defending these guys' actions, but how do we know whether the properties weren't already underwater and the owners already in default?

Most court records show address of plaintiff and defendant ect.

This means after both reports come in they will usually ask both to defend their values and reasoning.

Also key to this is people will say that they are doing nothing wrong....but that does not matter...if you have to spend time and money defending yourself to the real estate commission you have already 'lost'.Much of operating in the real estate business is understanding what is usual and customary...and there are parts of Maryland (Baltimore City, Hagerstown) where those strategies are acceptable, but most of the DC metro area it is not.  

I would look at it as don not do anything that you cannot document and defend. 

I would want all future tenants to pass unless they are under defendant care like someone one is handicap.   

Now if the LLC has multiple members, the only part of the LLC that can be lost is the defendant's share, not the entire thing because he doesn't own the entire thing.In short, the LLC protects you, personally, from your business, but you need something else, like gobs of insurance, to protect your business from YOU.

Or to have the title co. say that because the borrower was deceased at the time the judgment was filed and the creditor didn't name his estate as a defendant, they were going to omit it.