If you already own the building, then yes you need to raise rents and appeal your taxes, or figure out a disposition strategy.

If so, why did they not honor the contract terms for handling of the earnest money disposition?

Currently I'm working acquisitions/dispositions full time.

By investing in town homes you receive a lot of the same benefits that you would get by investing in multi-family as well as additional advantages when it comes to financing and flexibility of the disposition. 

(eff. 1-1-92)• In the event of a sale or any other disposition of residential real property by a landlord, the successor landlord is liable to the tenant for any security deposit or prepaid rent paid to the original landlord.

In the absence of passive income or a disposition, lossesare not deductible.

I believe meanwhile you'll have to deal with the tenant's estate with the disposition of her personal affects / furniture.

Like all deals, as long as you learn from your mistakes by mitigating risks and elements which are counterintuitive to your deal, along with firm follow up and streamlined automation, you can have a less hands on approach only if you delegate your disposition correctly and communicate  effectively!!!  

I'm looking for strategies on sourcing disposition wholesalers, agents and buyers that fit the criteria.Any opinions and recommendations are welcomed.

The head of our acquisiton / disposition department has actually given feedback on a number of sites and would be a very good resource for you.