For a lot of people they will ve so overwhelmed and in shock that they just want to walk away.

I would venture to say very few landlords correctly hold their deposits based on local landlord/tenant law but as long as the money doesn't walk away and is not wrongly withheld from tenants its highly unlikely wrongfully storing the funds will become problematic.

Assuming the ARV you mentioned is accurate, at 75% LTV you'd be able to pull enough equity to cover your existing payoff, refi costs and walk away with a good chunk of cash in your pocket.

Also, an 8min walk vs 8 min drive is a big difference in the world of student housing. 

Some properties are about 5/10 min walk to Reed so this would be perfect.

You need to walk or look at photos of their other properties.

Quote from @Aaron Fuller: Walk away.Rents could "likely" be raised to $8,000?

If not, walk away.

Bet they're making their car payments (walking sucks! 

They seem to be walking back.