I don’t want to be accused of discrimination, I won’t keep up on local law changes, I might be reluctant to charge late fees and with their knowledge of going rents and rent increases they usually pay for themselves.

Even if you are losing $500 per month which is ideally less than you'd pay in rent AND you get the other benefits of owning real estate like appreciation, value add equity, and the tax benefits.  

Do not pay 10k to a lawyer to set this up, if you want, you can set up the WY LLC for free on bizee.com but would also need a "Registered Agent" aka RA which is $25-$35 annually with 3rd party companies after the 1st yr free with Bizee.

Since the remaining tenants have still been paying, I'm not sure that I can treat the MIA tenant as absent.Let's say the remaining tenants decide to move out (probably because they will eventually have trouble paying) and I make the refund check payable to all the tenants per the rental agreement (and to protect myself against claims from the MIA tenant), but they can't cash it because they can't reach this third roommate.Any recommendations on what to do with the money or what course of action to take?

Please be gentle; I'm new at this and it's pretty complex :)Structure / Legal Details- we'd establish market value through a combination of comps from local real estate agent and an appraisal- attorney would establish all required "arms length" aspects including a mortgage at a minimum standard federal rate- LLC would pay us back based on a standard promissory note over 30 yrs Pros of selling to the LLC (I think)- A sale now would be the only time we'd be able to take advantage of the cap gains exclusion on this house bc we won't qualify for the "live there 3 of 5 years" rule due to the timing of our lease and our last time of residence. 

Even paying the state tax up there, I come out better buying in Arkansas. 

(https://learn.lofty.ai/en/articles/7025226-sell-equity-in-yo...)I understand I can also sell and do a 1031 - I've successfully done that once, and failed a second time (could not win an offer and ran out of time - had to pay a ton of capital gains tax). 

Your refinance loan amount isn't enough to pay off your initial financing.

One time deal, it will save you from paying to create LLC every time after. 3.

We usually have people leave due to being unable to pay rent though and that may not be the case here.