Simply, sell.

Wouldn't you rather avoid the claim in the first place along with the time and expense, increased insurance premiums, being limited to surplus insurance carriers etc. rather than absorb claims simply because you have an entity? 

Have you talked to the tenant and simply given him the option of breaking the lease?

Show people what the investment looks like over the life cycle otherwise people simply don't have enough information to go off of.

When there is a recently acquired long-term rental, lenders can simply throw in the lease agreement and use 75% of the rental income from that, but on a short-term rental, there is no lease agreement, so the only way to document what the actual cash flow is, is by using Schedule E of your most recent tax return filing. 

Okay so am I hearing both of you correctly that it would be best to simply sell even for a loss vs. holding it and renting it?

Get a lender, enter into contract, close escrow, enjoy your new home. if you have less than 30 days, you would need the seller's cooperation to contact the foreclosing entity to see if they will postpone to give you time to close the deal. it's not guaranteed and the lender is under no obligation to do so but if everyone wins (seller sells, lender gets paid off in full, you get a home), most lenders will provide a small window of time to get it done.

If we could afford the price point in our local market we would stay in the Southern California market but its simply too expensive. 

We also have lots of clients finding wins with ADUs and multi unit properties with house hacking.

This house is close to the beach so it’s been a win since we get to spend time down there.