I have also heard some attorneys' opinions that an out-of-state LLC is more difficult to defend when attacked, because it brings with it a level of suspicion.

We have daily team meets, weekly corporation team meets, legal conferences, weekly meets with bankers, and on and on and on all to keep "on the ball" with the entire situation, to know all there is to know, formulate action plans, have solutions ready for problems BEFORE the problems happen, so that any time one of our LandLord clients call with a question that I have the answer right off the top of my head to help advise and defend their best interest. 

Judgement to the plaintiff (maybe) in the amount of $0.00. or possibly, judgment for defendant in the amount of his legal bills.

If you do take on such notes, and you need to remove a buyer, you should be very careful you do not somehow find yourself in court defending the removal of a buyer for something the safe act would have checked up the loan on.

My agent says that the 3 million limit is enough to cause the insurance company to defend any claim vigorously.BTW, I have 4 umbrella policies. 1 for each LLC that has more than 10 properties.

And if ever audited your CPA will defend confidently. 

Likely, you need one to defend you from your tenant's FDCPA (or the state analog) claims, and another one to sue your PM. 

They are using this wording as  a way to deny the risk because in the case of a lawsuit they wouldn’t be able to defend.

That being said if you had to defend it in court and had a “buy/sell” agreement , comps, trulia/realtor.com/etc  And they were all close I think you would win and set a precedent which may be what the irs is waiting for.

It would be hard to defend that you are helping someone by enriching yourself.