Best practice is to keep one or two payments in reserve from the buyers down payment for such instances.

But I meant in the instances where the note itself is converted or exchanged for credits and the ledger shows it as an asset, deposited in a Demand Deposit account.

They also could have a mortgage that could not be satisfied by the price and in that instance, again the bank would not release it - so again stuck. 

For instance, cities like Chicago are known for landlord-tenant laws that skew heavily in favor of tenants, and that risk should be baked into your underwriting.What’s your take on balancing short-term cash flow with long-term equity growth?

@Jack Cottrell"I haven't seen the property in person although my realtor has been there"famous last words.sounds like @Caleb Brown can offer a ton of value here - i'd connect with him

Expensive markets are often desirable because many people want to live there, driving up demand and prices.Reno, NV, for instance, is a market that benefits from diversified employment sectors, including tech manufacturing, hospitality, and recreation.

Typically when you see "cash only" the agent doesn't believe the property can pass a home inspection which isn't relevant for construction loans in most instances and there are plenty of banks, hard money lenders etc. who offer construction financing on distressed buildings.

For instance, depending on your location insurance costs could be much much higher than indicated in the book, construction costs are a lot higher, etc. 

For instance, your bathroom picture is so close up that it looks even smaller than it probably is.

In this instance what I would do is get the deed in lieu from the borrower so you ahve the property again and get a note from them but have an attorney draft it to see if you can include a confession of judgment - meaning if they do not pay then you can get a quick judgment and possibly garnish wages.I would also have them put a small down payment as part of the note and only accept a check that way if you ever did garnish you have a copy of a check so you know where they bank.unfortunately you are right they can stop paying on the note and its unsecured so its a risk but out of all the options this is your best option.