Flipping can be feasible in one area for years and be a total bust the next year when every project comes in at a loss.

Note: I personally don't want to pursue pre-foreclosures, it's tricky and too easy to run afoul of Loss Mitigation laws in MD. 

(A substantial drop in national savings rates from 4.4% to 0.9% raises alarms about future consumer spending capacity, especially as recession looms and job losses become prevalent.)

It's better to work with a trusted, reliable, broker that does this day in and day out for a living than to go at it alone and take an unnecessary risk. 

Thoughts on (1) biting the bullet and starting the foreclosure process versus (2) waiting it out and trying to sell the property (at a loss)?

The W-2 income does not limit your deductions.You are entitled to write-off as much as you want.The next question is, is the overall loss considered passive?

And if they're smart they can maybe get a tax break for it, if they can show a loss on paper.

I see story after story of people being upside down and having to sell at a loss because they chased the shiny object without enough due diligence. 

Keep your sites clean, reduce your liability exposure, keep your loss run reports clean and premiums from increasing. 2.

Then I will deep dive the asset.I agree that you lose control also, but new investors doing a flip and trusting a contractor they met on Angie's List is way more a loss of control I think.