If the seller files for bankruptcy, that will involve you in a legal proceeding.

And there you are in luck because you can purchase any type of investment property anywhere in the country and defer all tax as long as you purchase at least as much as your net sale. and use all of your proceeds from the sale in the purchase. 

Our exchange didn't work out and they returned the proceeds via wire as soon as our 180 days were up.

I will be able to log the 50% time of business use.

Tax-Free Exchanges: While 1031 exchanges aren't available to SDIRAs, the tax deferral within the account means you can sell property and reinvest proceeds into new opportunities without immediate tax consequences.

That would mean splitting the sale proceeds.

but selling a trophy asset in a great area and then dumping the proceeds into money pits just because of paper math... would not be my step 1.hope this helps

For a rental property, the gain is subject to capital gains tax (15-20%) and depreciation recapture tax (up to 25%) on any depreciation claimed, unless the proceeds are reinvested.To minimize taxes, consider reinvesting the sale and insurance proceeds into another property under §1033 or converting the property to a rental before selling to claim depreciation deductions.This post does not create a CPA-Client relationship.

The auction price seems to assume that the proceeds will be applied to repay the first mortgage and the second mortgage.

The violation - depending on your state - will provide a 'cure period' before eviction proceedings would begin.