@Lydia S. about 20 years ago there were a lot of houses that had cracks in the foundation and owners filed insurance claims with their insurance companies to collect money to fix settlement issues. 

The roof needed work so the seller agreed to file a claim as I offered to cover any deductible.

If a buyer still has an enforceable contract to buy, they can encumber the title by filing an affidavit/memorandum of the purchase agreement.

So I just go straight to court and file the compliant? 

I assume how I identify in the exchange will determine how I file the schedule E.

If the owner does enter into any type of contract with you where a Quit Claim is filed there is the possibility the bank could Call In the loan meaning everyone who has an interest in the property is in a jam and if you don't qualify to get a new loan then everyone is screwed.The only way you can do this deal is through an attorney and a real estate broker is probably your least expensive and best bet.

SMLLC will have no tax filing obligation, MMLLC will have a tax filing obligation.

You have to file for a writ with sheriffs office and follow the rest of the process. 

He is going to file for previous years next tax season to have valid proof.

I own a house with settlement issues, after previous owners filed a sinkhole claim with their insurance company 20 years ago.