If you put a computer in charge, it's 100% just going to default to "most conservative" IE "what are we 100% sure will NOT create a loan buy-back in the secondary market?"

Numbers are too tight for anything else and with reverse mortgage if they leave the house it’s in default so Sub-2 is out.

He'd only need $300k so he can put up the $500k 401k and should he default, he would cash it out and net $275,000 on his 401k. 

A lot to consider here, of course check with local laws, but in general, if you are trying to avoid three vacancies at once: if there are no leases, the tenants will have default rights in your state, find out what those are.

A loan defaulted and the borrower texted me.

If so, is there some way to protect this member in the event of a default?

If that is the case, when I go to refinance and pay off the original seller, will he default to first position?

Where can I find default rates for DST-type offerings? 

With a LOT of loans originated under my belt and a 0% default rate, I can personally vouch for the passiveness of this Private Money Lending strategy!

This subsection does not apply to a lien or encumbrance placed on the property that is:(1) placed on the property because of the conduct of the purchaser;(2) agreed to by the purchaser as a condition of a loan obtained to place improvements on the property, including utility or fire protection improvements; or(3) placed on the property by the seller prior to the execution of the contract in exchange for a loan used only to purchase the property if:(A) the seller, not later than the third day before the date the contract is executed, notifies the purchaser in a separate written disclosure:(i) of the name, address, and phone number of the lienholder or, if applicable, servicer of the loan;(ii) of the loan number and outstanding balance of the loan;(iii) of the monthly payments due on the loan and the due date of those payments; and(iv) in 14-point type that, if the seller fails to make timely payments to the lienholder, the lienholder may attempt to collect the debt by foreclosing on the lien and selling the property at a foreclosure sale;(B) the lien:(i) is attached only to the property sold to the purchaser under the contract; and(ii) secures indebtedness that, at no time, is or will be greater in amount than the amount of the total outstanding balance owed by the purchaser under the executory contract;(C) the lienholder:(i) does not prohibit the property from being encumbered by an executory contract; and(ii) consents to verify the status of the loan on request of the purchaser and to accept payments directly from the purchaser if the seller defaults on the loan; and(D) the following covenants are placed in the executory contract:(i) a covenant that obligates the seller to make timely payments on the loan and to give monthly statements to the purchaser reflecting the amount paid to the lienholder, the date the lienholder receives the payment, and the information described by Paragraph (A);(ii) a covenant that obligates the seller, not later than the third day the seller receives or has actual knowledge of a document or an event described by this subparagraph, to notify the purchaser in writing in 14-point type that the seller has been sent a notice of default, notice of acceleration, or notice of foreclosure or has been sued in connection with a lien on the property and to attach a copy of all related documents received to the written notice; and(iii) a covenant that warrants that if the seller does not make timely payments on the loan or any other indebtedness secured by the property, the purchaser may, without notice, cure any deficiency with a lienholder directly and deduct from the total outstanding balance owed by the purchaser under the executory contract, without the necessity of judicial action, 150 percent of any amount paid to the lienholder.