There's a difference between protecting yourself from excessive legal liability versus adding escape clauses that allow you to exit the contract at any time, scot free, with all of your money.

This could possibly open you up to some liability.

We currently have policies for each place, which have minimal interior coverage, and 100k of liability per policy.

You are overly invested in the asset,  imo refi to pull equity UNLESS your cashflow goes into the toilet.2) HOA, property  taxes, fire and liability insurance are deductible3) "the monthly payment would not be categorized as an operating expense correct?"

You can also check the county recorder, although most liens are wiped out by the tax sale.If you are the winning bidder and that property has been abandoned (meaning nobody will ever redeem it) and it has multiple violations against it, you may have acquired a liability instead of an asset.I just read in the chicago tribune about a tax lien investment group who basically gave a bunch of houses and lots to a homeless man. 

Hi Guys, what is the best for liability insurance when you own rentals properties?

Because of this I believe it is important to mitigate as much liability risk as possible.

Since that is the case, each of the tenants can make their own decision on whether to take cash and accept tax liability for their % of the sale, or to do their own exchange with their % or to combine with each other.The problem is if you already own that second property and are wanting to pay down debt.  

I recently did a 1040X, but had no tax liability thanks to depreciation from several properties.

LIABILITY FOR DAMAGES, INJURIES, CLEANING, ETC.