., keep in mind that this person can be a vital part of your team for years to come... or vice versa! 

Which is vital when you're working to get jurisdictions on board to something that's a little unorthodox.

Just trying to make sure i'm not missing anything vital so I don't get into a terrible situation.

These loans can be more versatile, allowing you to take down a property like this which may not work on other loan types.IF you have enough space on the lot AND other locally required things are true (like total sq. ft of the lot, linear frontage feet, etc) you may be able to purchase this using a commercial loan, split the lot into two (or rezone using a SPUD type of specific zoning modification) and end up with a fully marketable property, even if what is there now is not.Best of luck, Kurt!

I have made a few payment modifications that have no late fees if the tenant contacts me in advance with a workable plan and sticks to it. 

not an option C but a modification to your Option B. 1031 exchange it into another property, hopefully one that cash flows this time, and avoid the taxes part of your option B. 

There are formal modification options such as "cap and extend" as well as options, etc. but those are only for government loans.

Is there a list of modifications or a document somewhere that supports/explains this? 

That became our first buffer (in a few cases, we signed a modification agreement with the tenant to use a portion of that last month's rent towards the current month's rent). 

Are there any modifications to the written lease?