Upside down on second property

[Brian C.]

Hello everyone. My in-law has a special situation and I'd like to help her out and look out for her best interest. She has been a great help and a positive influence in my family's life and I wan't to help her out on finding a benefitting solution for her, if possible. So, I come to you guys for your help.
Now, on to the issues. My aunt owns two properties just to help out a relative who couldn't qualify to purchase his own home. She resides in property A, and relative resides in property B. Relatives are moving out and the mortgage is under her name thru Chase. Relatives makes the pmts which is an interest only loan (adj) and was opened in 2006 til present. (I read up on Harp 2.0 but have a few unanswered questions.)
I'd like to know what her options are from an experienced and knowledgeable investor's point of view on how she can get out of property B being upside down.
My thoughts are refinance property B (would property B be categorized as an investment property?) to a fixed mortgage (with who, what, where) renovate property B in hopes to increase value in the future, move into property B after renovation and hold til value catches up or exceed and maybe cash out, Rent out and hold property A in the meantime. I think the mortgage pmts on property B will be too high to try to break even as a rental unit.
What do you guys think? I don't know what other creative strategies you savvy investors do, so I bring this situation to you guys in hopes I find a solution and learn from this experience. I am open to anything and everything and will look at all options that you guys send my way.

Below is a list of details I have for now about the properties. Let me know if you guys need more information to better paint the picture.

Property A
Owes (???)
Mortgage pmt (???)
Guestimated from Zillow $280K (I know Zillow is not an accurate figure. Im just using it to get an idea.)
No late pmts

Property B (Alhambra, CA)
Owes $520K
Mortgage pmt $3K (adjustable) thru Chase
Guestimated value from Zillow $420K
No late pmts
Excellent credit
Sufficient income to qualify for a new loan

Thank you all in advance for your inputs and I greatly appreciate every single one of them.

[Jon Holdman]

Any chance these relatives your aunt was helping out can pitch in? Your aunt bought them an expensive house, rented it to them cheap (paying the interest on an IO loan is a LONG ways from being profitable) and now they're bailing. Nice. With relatives like that, who needs enemies. Was there any sort of agreement with the relatives about them buying the house? Your aunt has been subsidizing their living arrangements, not just helping out someone who can't get a loan.

Refis are difficult when you're underwater like that. Yes, this would be considered a rental. I'm not sure a refi is possible without bring a big wad of cash to the table. Probably something like $180K. But it would be worth just calling Chase and asking if there are any refi possibilities. Chase did a very streamlined refi on one of my rentals a couple of years back. The value they came up with was very high (as is, you'll pay what! of course I'll sell.) So, perhaps it would work for her, too.

Expensive houses like these make bad rentals. You just can't get enough rent to cover the true expenses, which are much more than just the PITI.

OTOH, the housing market is looking better than it has in a long time. So, some appreciation over the next 10 years could be a possibility. Does your aunt have resources to kick cash into the refi and then hang on even if the rentals are cash flow negative?