My remaining mortgage balance is around $94k, so you can see that I’m already facing a significant loss in selling this property.

Downside is need for a custodian (they don't work for free) and you can't use depreciation, and you can't take a loss.

Positives: 1) Provides higher protection against rent loss, property damage, evictions, etc vs.

The only exception(s) to this (if any) are the items reflected on theaccompanying Escrow Holdback Agreement, if applicable.Citizens is authorized to disburse the final draw in the amount of $________________ in accordancewith the executed Disbursement Authorization on file.It is understood that, in the event the Borrower(s) are dissatisfied in any way whatsoever with theremaining construction after completion by the General Contractor, their sole recourse is against theGeneral Contractor.Borrower(s) and General Contractor, jointly and severally, agree forever to fully protect, defend, andsave harmless Lender from and against any right, interest, claim, and each and every of them, ofBorrower(s) or General Contractor against the Lender, against all losses, costs, damages, and attorneyfees and expenses of every kind and nature which the Lender may suffer, expend, or incur under or byreason or in consequence of holding the remaining proceeds as provided herein."

However, you can’t deduct any loss of rental income for the period the property is vacant.I’ve gotten mixed answers on what to do.

If the tenant has failed to comply with the 30 day notice obligation and you have been unable to rent out the property within that time, then you may consider deducting a pro-rata portion of the rent or other losses from their deposit.

Pay the monthly charge, they cover losses.

Also, what happens if you fail to maintain proper insurance coverage and their is a total loss due to a fire?

Michael, you are right, I just got confused with losses.

You started off with a BAD Contractor and a BAD tenant...Just learn from the mistakes (as you are) and carry on, Make back your losses and tell us your success story next time.