Please learn from my main mistake......I gave people to much benefit of the doubt, trusted people at their word, and did not trust the warning signs slapping me in the face at times. 8 years later, I still have not fully recovered financially, and I struggle to take care of my now disabled wife.

Tax Hit and Save Cash: ~24% tax hit, but have cash for the next downturn, and can purchase more property with less capital, and potentially see greater gains as the market eventually recovers. 

If so (and that's a gamble, of course), how many years would it take for you to recover the lost equity and additional expenditure? 

Any mistakes they make now will not be as easy for them to recover. 

If they loan you 75% of the value of a property, they can foreclose on you and sell the property and recover most, if not all, of their money.If they loan you 100%, and subsequently foreclose, they will suffer a substantial loss.  

She won't ever find anything because you would never do that (it's probably illegal) but she will stop her behavior believing she is being recorded and probably would move which is a shame, but you could probably recover from that.I'm just joking of course, or am I?

And of course is time for a rent increase (to recover the money spend +, so you are really nothing out of pocket).Option B would be kick him out and remodel the whole place, but that would be costly as some have mentioned and maybe it will kill your cashflow.

*Note* you already recovered your initial  investment of $50,000.

Ah, and then I must look at the larger picture.The month to month rentals need to sign a 6 month lease. 6 months is enough time for you to know if you wish to keep them, and it keeps cash flowing while you recover from this deal, and prepare for the next.I would have a sit-down with the tenants to explain that you purchased the property as an investment, and desire a profit.You have a lease with you, and a notice to vacate at the end of the month.

I made a mistake and need to recover my losses.