Based on a conversation with an individual that works in the loss mitigation department of another mortgage lender.

Just trying to figure out where unrealized losses play into capital gains when an investment property is sold.

Never speak for the insurance adjuster or carrier regarding what will be covered during a loss.  

I didn't hear whether it was ever resolved, it would have been an ugly mess WITH title insurance, and a complete loss of any value without it.You'll never see a big bank lend without title insurance, and it's almost always a cost born by the borrower (read: "you want our money, you pay to protect us")

It is not uncommon for rental properties to cash flow monthly, but show a loss on taxes at the end of the year.

Seems that people overbought when it was hot from 2010-2014 and now can't take a loss. 4plexes are similar but I managed to find a great property that cashflows well.

If your loss is significant maybe consider having your agent negotiate some of those costs in your favor, maybe drop the price a few K's make it worthwhile for you. 

From an economic standpoint it leads to deadweight loss (DWL), so market inefficiencies.

I want the seller I purchased from to pay for repairs, legal fees, etc......better yet be made to buy the home back, and compensate for loss of value. 

Something is definitely wrong here. 10-year ownership -> gutted/incomplete work -> wants to sell off-market (possibly to save broker fees & minimize losses?)