That seems to be my default option at the moment!

There is inherent risk with these notes(can it default etc).2) The income from real estate is considered passive income.

A lot of risk for 2%, could you carry a default for however long that could drag through the courts?

You are a private lender it sounds like so hopefully your note provides for remedy in the event of default.

Without going into too much detail, he is currently in the particular position... where he can identify borrowers that are delinquent - long before they have been formally sued by their lender and everyone knows about the default.

We countered both offers @ $3.1MM, which was the amount needed to recoup principal, default interest, late fees, contract interest, foreclosure costs, and fees.

You have a far greater chance of defaulting on your debt than you do losing your property in a lawsuit.

My question is, if a tenant defaults and is evicted, but he/she still has a year left on his option, what do you do? 

[They can then hope that you DO default, so they get to own their property again, and keep all the payments you've already given them].

With the run up in values, it's suspect when you can't sell to break even.One (almost) absolute: Never let the defaulting owner stay in the property.Hope that helps.Good Luck!