For us Californians, the best thing to to might be just to start small, with great insurance, and keep your OOS tenants happy (be thoughtful)...that usually will reduce the chances of a lawsuit from the get-go.

My main questions are around how to structure entities, taxes, profit handling, and overall process.Thanks!

It is either one or the other, so hard to put that on the PM.Neither you or the PM handled this situation as well as you could have, but from what you said, I do think you are entitled to some money back for prorated February rents.

Any advice on how to handle this?

In the Bay Area could I find a realtor who would handle all the transactions for a flat fee, say $5-10k, which would be 1-1.5% of purchase. 

It reduces your leverage to manage them later. if they are getting booted from their current place, why would you think they can pay you?

Just kiddin'.Anyone going through foreclosure has several things going on: 1) They are under a lot of stress, 2) Everybody is mailing to them and knocking on their door, 3) They are embarrassed, 4) They feel helpless, 5) They have the belief that winning the lotto will bail them out at the last minute, 6) It's the bank's fault, 7) This can't be happening to them, 8) They don't want to sell, 9) The house (even though it has a leaky roof and hasn't been kept up) is worth more than market price, 10) Believe you are there to take advantage of them, 11) Believe the government should do more to protect them, 12) Believe that their payments reduce the principal directly proportionate to their payment (Have no concept of compound interest, what Einstein called "the 8th wonder of the world"). 13) They can file a Chapt 13 bankruptcy at the last minute and keep the house if they have income, 14) They will wait until the day before the sale and call you if none of the other solutions work.Your opening comment should be " I buy houses in the area and I was wondering if you or someone you know might be interested in selling".

I would call your local sherrif or PD, and ask them what your rights are as a property owner for an abandoned car... get that info... then you can maybe ask about the foreclosure angle... or ask the county office who handles foreclosures.

Wanting to know if anyone knows of a way to reduce ownership % in condo complex.  

Our PM handles this transition for us.