@Jo Zhou there have been some outstanding suggestions about senior services and veterans agencies providing resources or funds.

The returns are outstanding.  

Everything looks good financially, however I've not sure what I should look for or how to protect myself from, any possible outstanding taxes or other liabilities that might be hiding out there on the subject acquisition LLC.

@Logan Allec provided an outstanding explanation, and @Basit Siddiqi added couple good points.I just want to frame the bigger picture: the new law does NOT hurt ("hose", using your word) people who receive 1099-G for prior overpayment. 

Just to be clear, you are asking if you should (a) walk away with $20,000 or (b) take a multi-year 100 point hit to your credit and potentially be sued personally for any outstanding debts that aren’t extinguished by the foreclosure auction (depending on the rules in your jurisdiction)?

Historically San Diego is almost a sure thing at producing outstanding ROI. 

I originally cherrypicked 12 units at 450,000 contingent on any outstanding repairs needed .

This is 3% of the FMV of the property... not 3% of the purchase price or the outstanding balance.A standard home is going to appreciate $3,000-$5,000 annually in this area.

Its a short sale because they want to sell, the net proceeds are insufficient to pay off the outstanding debt and they don't want to bring cash to closing to make up the shortage. 

In the lease you must clearly state that any outstanding utility bills left unpaid by the tenant will be paid on their behalf and are due and collectible from the tenant when paid.