That way, if the balance of the rent is not paid, there is no question that I can move to eviction as soon as the law allows.

You need to understand and follow the rules.The only way you can access your 401k funds to invest in YOUR project is by taking a loan from the plan, which would be limited to $50K or 50% of the balance, whichever is less.401k can invest in its own projects or someone else's, the rules prohibit any transaction between the plan and Disqualified Person. 

You can take a loan out for either:- 50% of your account balance UP TO- 50kUsually pay back within 5 years max, payments starting soon after loan is taken out.

Personally, I don't think they live comfortably, but that's using my criteria of lots of rainy-day savings, good health coverage, ability to eat at any restaurant I want without looking up my banking balance first.

Why are you interested in seller financing to a tenant when you still have a outstanding loan balance?

Therefore, it's all about controlling risks and balancing this with the cash flow and quality of life for your tenants.1.  

However in an attempt to get this cleared up I contacted her and she said that during that time she received no money from him, in fact she said that she never carried any balance for him. 

Partner is providing the Down Payment, While I am Signing for the remaining balance of the loan.

Next 5k - No taxes as I already paid them (contribution), incur a early withdraw penalty since they are taken out before 5 yearsRest of balance (gains) - Income taxes are applied to this full amount, incur a early withdraw penalty since they are taken out before 5 years

However, this scenario assumes that there is equity and it will sell at auction for at least the amount of the first mortgage, so the lender can get their money back when somebody else brings in cash.If somebody (probably the homeowner) recognizes that the value of the property is less than the principle balance on the mortgage, the auction becomes unlikely, because nobody will buy it for more than what it's worth.