Does this arrangement sound reasonable? 

The amortization was based on 30 years with a balloon payment all due and payable in 10 years.The transaction closed and the first and second liens were documented on the closing statement so all parties, including the lender, were aware of the arrangement.

  :)If  you would like to explore KW, let me know and I can suggest a good office for you, and even arrange for a meeting if you'd like. 

Screen tenants really well and do frequent maintenance visits or arrange for your maintenance visits to be with a trusted handiman to survey ongoing condition of the home.

That's immaterial to the situation - the tenant is in breach of their obligations.The tenant did not approach the OP to indicate they planned to move and to make arrangements for rent payments that would deviate from their established practice.  

I would also give her a written 30 day notice to vacate and let her know that if she fails to keep the arrangement you will expect her to be out within 30 days.

I don't have any experience with HML, but I'm in the midst of my first Homestyle renovation and I can tell you a little bit about the potential negatives (compared to cash or hard money)you'll need to pay $500 or $600 for a "renovation loan consultant" who represents the bank in seeing that the work gets done to the extent and standards that you've arranged in the loan.

The former 1930 gas station did not resemble a gas station in any way. 

If the tenant pays for their own utilities, then I wouldn't charge extra rent for such a short-term arrangement.

Truth: Always get every arrangement in writing before paying them.