I do hope this works out better than it looks though for everyone involved Like Chris C mentioned in his post we do need all the facts.

I realize it's just an example and my comment is a generalization but just something to be aware of.With regards to the original question, I think it comes down more to what you want to do and what the offer is for walking away vs. rebuilding.That is the exact example a public insurance adjuster used when speaking to a local investor group a few years ago.

They provide all the solutions one could ask. 

For me, it was easy.

It's just a math problem and if you've done the work up front you shouldn't second-guess yourself.

You let it slide, waive the late fee, and she pays by the 10th.

Similarly, if you put several Class D tenants in a Class A 4-plex, what do you think will happen to the property?

My question is "when do they select those 1000 returns?"

I WAS going to say you’d be setting yourself up for a large tax bill on that $200k, assuming investment.

You notify them you will be purchasing the policy for them and doing so with their security deposit money, if state law allows it.