Obviously if they pursue a deficiency they can't collect if you are below certain federal income guidelines.You can always file chapter 7 if you pass the means test and blow out all the bad debt except for some IRS taxes,some student debt,and back child support.No legal advice

Since it's FMAC, you'll likely a deed restriction on resale for 90 days, so your best resale options are to purchase with a trust or business entity and sell/assign your interest in that trust or entity.

I would think that if you structured it such that your buyer paid the servicer, who paid you, who paid the servicer, who paid the original note, you could feasibly still take the deduction.May want to bring Shawn Watkins in on this...No tax/legal advice.

Jake, can't follow the link, but without reading it, I can see the public purpose, however getting between a lender and a borrower may have some legal issues that they may not be able to afford to fight.

Here is a website that has great information on what these two documents contain http://www.nolo.com/legal-encyclopedia/llc-operating-agreement-30232.html.

I would like to know if there is anything i can do legally to make his life miserable while this is going on?

Anyone see any issues with this situation from a legal or contractual point of view?

A big problem I see is people exchanging trying to use their attorney or real estate broker to hold the funds.With a few exceptions all of these are considered disqualified parties:A close family member or a controlled corporation,partnership,or trust.OREmployee,attorney accountant,investment banker or broker,real estate agent or broker.If you use these people you can get disqualified from the exchange and create a taxable event.You have to use a proper QI or years later you can get a nice surprise from the IRS.Some clients have asked me and I tell them they need to place the funds and the whole process with a proper QI.No legal advice

You must have it in writing and legally binding.

OTH, if this birddog is working for you I'd suggest you put them inside an LLC on a restricted basis so they can be paid if the company buys or as a partner fee, that will make them a principal.