If you are really stressed about the timeline, you can do a reverse exchange and buy your replacement property FIRST, sell your current property later.

This is where I started as well, and then about 5 years later I was able to leave my W2.

Interest income is interest income, unless you decided to roll some of the current cash into a self directed IRA at which point your interest income would be deferred for a later time and allow your funds to grow tax free.

I want to refinance it about 12-18 months later into a bank loan. pull out money to pay off the HELOC and enough for a down on a 2nd house or duplex.

They normally do a very poor job that will have to be corrected later - drips on the floor, doors walls and molding, poor job of cutting in, bleed through on the walls.

Later payments if after the one year anniversary would be at CapitalGain rates.

Meeting with a lawyer later this week to see if I have any case here but wanted to provide a brief update in the interim.

If you foreclose and take it back then you can resell it later but if you are owed $25,000 and it sells at foreclosure sale for $40,000 you don't get paid $40k.

It is better to do it sooner than later. 

If you're cash flowing on the home being rented, I would keep it rented and decide what you want to do with it later.