We have a property manager for another SFR in town and they said furnished rentals are too much trouble, so they won't handle it if we leave it furnished.

It looks like I just need to call an attorney and let them handle it.

If I decide to rerent immediately, then I would try to rerent in time to refund them some share of the month's rent.I need to think through how to handle the house moving forward.

It is faster and easier on your pocket to hire a collector agency to handle this.

The team handled everything from furnishing it, listing, and day to day management.

You want to be in B class or above neighborhoods unless you have an absolutely steller prop mgmt company that can handle the tenants of C class.

How would you have handled this situation, and is there anything we might do differently in the future to help manage tenant's expectations from the get go?

google good attorneys that handle real estate sales in mason county or the optional route is to hire a real estate agent to handle both sides.

If he lives out of that City you could write him/her a letter of your interest and how you could pay the tax bill as part of your offer.In the meantime, you might ask the Tax Assessor clerk who handles the tax foreclosures and ask them if a mortgage company is involved. 

When selling, you can put on the market to see what it would fetch if one of you wants to sell and that would be the buyout amount required to prevent the sale from happening and buyout equity from the other partner.3) How cash flow will be handled.