You will not get a good price on the note with the delinquent tax balance. 

The credit scoring system in this country tags people who make minimal payments on large balances as good credit risks.

I have heard of investors getting the deed and paying off the 'principal balance' as opposed to the payoff.  

If you have a credit card with a $20,000 limit, and you have a $19,000 balance, that looks far worse than the same card with a $2,000 balance.Your original post says you have a close to 700 credit score.

Specific Worst Case ScenariosThe house a mortgage balance of $63K, sell price is listed for $78K, current rental rate about $850, 3br, 1 ba, 1400SFAny advice is appreciated.

If I keep home I will keep having rental incomeIn case I do - A.I get 500K i can reduce mortgage on my current primary home which is jumbo - so it will become conforming and may be invest some money in tax managed balanced funds.B.

This indicates that a balance has been struck between the jobs that create other jobs through a multiplier effect and jobs that do not or if they do the multiple is low and indicates a stable economy and hence a stable housing area.Doctors, Engineers, Business owners, etc. have multiples of anywhere from 5-20 on a first level tier.

I have also, on many occasions, wrote the note at the usury limit (10% here in CA) and then paid the lender the balance 2% on my hand shake.

So it seems all you will have to do is pay down the mortgage balance a little bit and you are fine to sell the property free and clear.  

Just take 80% of the value of your home then subtract your mortgage balance.