For some that appreciate the immediate exercise it isn't a big deal, but it does immediate limit my tenant base to those that can take stairs.  

Your main concern here is to make sure the bank doesn't get spooked and exercise the "Due on Sale" clause that is included in every loan that says if title is transferred, the bank can call your loan immediately.

That is still to be determined, but we have decided that we will exercise our option; it's just a matter of how at this point.

If you do an exercise in "Values Clarification" it may help you find your passion and purpose.  

My take away from my time working with mortgage servicers is this- if you feel like your daily work life is an exercise in futility... get out.

I give them the realities of the market on a national scale and then they decide if NNN whether single or multi tenant is right for them.I just think it is a wasted exercise to go into tons of what if's when someone does not have the deep level experience of the reality in the sector.Hope it helps.       

And that my friends is the moral and the importance of me sharing this story.In the event that the 3 years passes and I decide not to exercise my option, I will have to cover the carpet cleaning costs and repaint the walls.

In most states, the public auction clears out any junior liens, but there are exceptions such as tax liens, which typically will continue to be in effect after the auction"They are transferring title via SPECIAL WARRANTY DEED, rather than TRUSTEE DEED,so there's this:Special warranty deed Arizona and junior liensArizona Revised Statutes33-402, Forms for conveyances; quit claim; conveyance; warranty; mortgage .... 33-723, Right of junior lien holder upon foreclosure action by senior lien holder ... 33-730, Limitation on deficiency judgment on mortgage or deed of trust as .... 33-1226, Easement to facilitate exercise of special declarant rights ...www.azleg.state.az.us/arizonarevisedstatutes.asp?

Unless you have behind the scenes info, the liklihood of a deal here isn't worth the time you're investing trying to figure it all out (unless you're just doing this for mental exercise that is).I suggest you come up with some sort of threshold/prelim test to filter out these type of situations and focus your time on properties that are more profitable and more likely to be sold at the price you need.Time is your most valuable asset.  

If of course, your life and personal situation complies :) I have done this for three years now.For this thought exercise, let's assume the RE professional requirement has been met, and that the net rental income (excluding depreciation) equals $0.Isn't 100K of gross taxable income less 30K of depreciation equal to 70K of taxable income (i.e., 100K-30K=70K)?