The mortgage company didnt give me specifics on principal reduction but, I have $162K in equity so they have stated They shouldnt be looking for any monies to be put towards principal from the sale of the lot.

Our principal is reducing with every month of rent.

Only the hard money lender has a mortgage on the property, my loan isn't secured by the property itself, so any claim by me would be against the rehabber (mistake 1).As it turns out, he significantly overestimated the FMV of the property (mistake 2) and now the only offers he can get on it wouldn't be enough to pay me back all of my principal, never mind points and interest.So the primary option is to sell the property for what it can get right now, the rehabber pays off the hard money lender, and the remainder would pay back only part of my principal.

Your mortgage principal is not.  

I will usually make purchase price 20% off the ARV, set the principal amount to never change each month for the 4 years and then have 1-2% interest on the remaining balance due.

The monthly principal and interest payment at the par rate of 4.0% is $1,432.

None of the payment applies to the principal, you pay the property taxes not him, you pay landlord's insurance and he has renter's insurance.

I'm not really cash flowing much as I cut her quite the deal to help her out but I will have it fully paid off in the next year or so as I've really buckled down on additional payments to principal.

If I go for 30 yr, another option is to pay down extra principal every few months.

And for me everywhere I have looked and talked to another lender even told me that during the draw period it should only be interest only and then after that it will be principal as well.