How she can do this without having her conscious kick in is alarming.

While they do eat into rental margins the larger profit came from the sale and the added rental profit was not worth the hassle of being a landlord.

This is your seed, when you plant seed you expect a return, but if you eat the seed (blow your money), you have no seed to invest, (no return). 

If you are only doing a 1-2 year lease option, then I'd recommend you just buy down the prepayment penalty to 1-year and just eat it if the borrower executes early. 

I've even heard of GCs using auction type settings for returned items at Home Depot and Lowes for steep discounts.I've learned a lot about the GC game as I was up close to over 40 projects last two years and some went well and some did not and when they did not it was all Contractor related.If a GC isn't sourcing cheap materials at the same time milking the hell out of his 150-200 per day workers, then you can find yourself eating into your margins real fast. 

Skip the vacations, skip eating out with friends.  

As the owner, you may want to eat the cost since future tenants will likely make the same mistake.

I would have already filed lawsuits - if you know of 10+ typically there is more, and those who get in line first get to eat first - you do not want to be like the guy in office space and sit around and do nothing and not be the one to get a piece of the cake.

The buyers need (not request) a full 5%-6% seller assist and become complete menaces and eat into your margins with lengthy repair addendums following inspections. 

Always pay them back and eat the loss yourself.