I would refuse to release the property out of contract until they agree to return your money.

No payment before lien releases are given to you, shows that the contractor is a actually paying his bills too.

Next, can tenant B afford to be there on his own or can tenant A & C qualify, if so, have tenants A & B sign an addendum releasing A from the lease then right up another addendum adding C to the lease. 

If there's no language in the contract about unforeseen increases in material pricing, he may be stuck and you need the advice of an attorney.My suggestion is to see if you can get him to pay you for the release. 

Now that I think about it even after we got released from the junk lawsuit and sent that schmuck client his remaining escrow funds I think his tenant came back to us a few times over the years and filed some more junk lawsuits against us for that brief period we managed his slum.

By my quick calculations, including the mortgage payments, you would be looking at about $1200/month negative cash flow.You have almost $300k in equity trapped, to be released in your custody once sold.There's no question this is a sale.

And, celebrate what a great investment you made! 

I would not release anyone from the lease, I would not "re-qualify" any one party - I would expect performance to the lease. 

I think that new release is misleading.

The deposit is in a escrow with the Title agency - would it be fair to assume that I will have to sign a release for the seller to actually get that money or will it be auto released to the seller.