This will not create a taxable event.  

Failure is not an event.

What every new investor should do is to attend a Landlord Association BEFORE INVESTING, and sit in on some landlord/tenant court hearings in your area. 

I post them in the Event's section- you can find the latest one here.We've been getting together 6 months or so, and I really look forward to seeing the group grow.There's also a meetup group linked in that thread that you can join.Hope to see you on Jan 5th!

I would recommend attending local real estate clubs and network with others in the industry.

That's why I mentioned speaking to your accountant.Another way, probably better as to control the project, would be to use TIC, TAC, TOE, Tenancy In Common with a TIC Agreement that spells out the conditions, restrictions and requirements along with a reversion of the interest in the event of default, a repurchase agreement.  

I attend the one in PP. 

Hi Michael,It's a bit of a drive for you, but you might want to check out this event that @Mark J. is putting together tomorrow evening:https://www.biggerpockets.com/forums/521/topics/26...I'll be there and I'm hoping to learn a bit more about the Tampa area foreclosure process and finding potential flip deals as well.  

I have seen many properties sold at our auctions at prices way below market value.You may want to attend some of these owner ordered auctions.  

It seems at times we seek to re-live some of the mistakes that lead up to that event but the path and pressure comes from different angles now.