From the net sale the mortgage is paid off also on the settlement statement and only the net proceeds (left after the net sale pays the mortgage) go into your 1031 exchange account. 

For instance if you need more time for due diligence or Settlement deadline you can do an extension in an addendum.  

With working to pay down or offer less for faster settlement.  

The bank told my cousin that they will take a settlement.

In most cases, they just don't trust the investor.What are investors trying to accomplish with "buy like rent, lease option, option", In most cases it is to BUY TIME to find an assignee or to flip the property.Here are some ideas you may want to try on for size:Write a contract of sale (I use a skinny contract, one that anyone can read and understand in a few minutes) with a delayed settlement (for as long as you can negotiate), with right of possession or if occupied right of entry), and "subject to the existing mortgage"Skinny contract of sale with a Study Period, with right of possession or if occupied right of entry.Make full disclosures 1.

What I do know is I have a settlement coming from a roll over car accident that was caused by the other driver.

Ask for money back at settlement, or don't do the deal.

Make a lower offer subject to a reserve public auction, offer the seller a 10% hybrid (10% of anything you get over what you offered), make full disclosures, get right of possession (so you can clean the house up and show it to prospective buyers), build in an extension in the event you need more time and use banking days for settlement.

and then wouldn't an aggressive litigator go for the insurance settlement *AND* your personal property?

Normally the settlement agreement would stipulate something like: you and/or the seller pay a much reduced amount of fines (I think on one occasion it was agreed a > $500,000 fine would be reduced to $20,000) to the city and the city will drop the outstanding violation, in exchange you agree that you will actually remedy the violation(s) within a certain amount of time (apply for the appropriate permits and so on).If you are confident that you can negotiate with the city and resolve it that way, it may be logistically easier to buy the house with the violations, and then resolve them aftewards (my first point)... but it's obviously MUCH safer for you to come to a binding agreement with the city prior to closing (that stipulates that the city gets paid for whatever they agreed to accept for the violations right after closing).