I emailed them last night to let them know that I received the letter and am going to address the issues right away to show them that I’m taking it seriously and I’m cooperating.

I understand this will lower my credit score and as multiple lenders each get my credit score/report, I am concerned that it will heavily impact my credit score negatively.Are there strategies that you recommend to workaround this or is there a way to do this effectively without heavily impacting your credit score?

I initially hoped to ask the seller for a credit to fix however I am hearing that the amt of credit you can ask the seller is limited by the closings costs amount (in my case max it will be $12K) so I am not sure what to do.I am aware of the 203K option, but I am not sure I want to go that route as I am comfortable with my plans for down payment and monthly expenses currently. 

I initially hoped to ask the seller for a credit to fix however I am hearing that the amt of credit you can ask the seller is limited by the closings costs amount (in my case max it will be $12K) so I am not sure what to do.

I currently have a credit score of 720 but no cash.

If you're committed you'll do whatever it takes,"  - quote credited to John Assara.  

The lawyer told them that when they sell the house they can negotiate a settlement for perhaps 1/2 of what they owe.Their credit has been significantly affected by the heloc default.

I would certainly reach out to an Mortgage broker in your area, if you can find a good one they will pull your credit and help you form a plan as to what you will need to be able to qualify.. ie next year you need to net 102k to qualify for x amount and a score of y so you can buy this property.

Is it required or desirable to include a 1031 cooperation clause or any other language regarding my intent to sell this property as part of a 1031 exchange?

I really want to turn that active/ordinary rarned income into passive income as soon as I get credit and learn more about rental properties, leases, etc..