Tell them that the tenant has broken the terms of the lease by making modifications to the home without your permission.I thought section 8 were supposed to be paying market value for the rental (well the govt does and they pay a fraction of that).

I understand that this will necessitate working with property managers, but I am hoping that I can build a good team for mutual benefit.  

The loan servicer put me on a trial plan for 3 payments before doing the loan modification.

Loan modification? 

I am sure your lease prohibits modifications, sublets, etc. 

There is one tenant who is perfect, he has even done quality modifications and improvements to the home (with the owners approval I believe).

You can ask your lender if they will do a mtg modification rather than a new mtg. 

Are there any modifications to the written lease?

Two of our purchases depreciated close to 20% after purchase (and both were purchased at retail), but both are up over $1K/month over the hold period now (1993 3/2/2 SFH purchase in Claremont for $167K, worth ~$700K today; 2003 4/3/3 SFH purchased for $741K, worth ~1.25M today).OOS almost necessitates use of a PM. 

At the end, you can do a loan modification putting the entire amount unpaid at the back of the loan as an interest free payment to be made once the loan is paid off.