The family does have the right to sell the property, so put it under co tract and spoke with the loan servicer (Novad) and ultimately had to have an appraisal done (surprisingly Novad paid for it) and appraisal cane back 20k below the payoff amount.

The below is pure speculation; I don't work in "loss mitigation" or have any insider scoop on it.With interest rates as low as they have been since 2012 or so, and given where appreciation has been, and the fact that when/if a home sells the title company will require that the lender (plus back interest) be paid off, it's possible that the 'rational' thing to do is let the interest accrue on the assumption/hope that there will still be equity in it at that point when someone dies/divorces/etc and sells. 

Owner currently pays water, garbage and sewer and rents are below market, although 3 of the units are on month to month.

Below is the following scenario:The house: 1800's Greek revival made into a duplex.

There are cheaper areas (below 500k) like South LA and Riverside county where you could grab a rental or a flip on the lower end of the LA market.

By the time realtors and closing costs get done with ya, you will be well below that net.But - depends on your w-2 income and tax bracket. 

We literally had to gut it to the studs.The pic below shows it rehabbed & that immediately got us $750/month vs the original $475.By the way when they did vacate they literally left everything so we had to package & store the disgusting mess for 30 days.

And I would recommend asking some specific questions (referenced below) to see if they are flexible with investors. 

This annoys some investors/buyers and filters some out, but if they can't make time for a quick meeting, how will they make time for property showings??

Feel free to ask any questions you have below and I'll try and help as much as I can!