Will it make the note stronger or weaker?

I think the smarter course of action would have been to tie the property up with an offer to purchase and then to hammer out the P&S when your attorney is available.I hope it works out for you, but this seems reckless. 

You know what they say, what doesn't kill us makes us stronger.

Ties into the first problem.

Don’t forget that you’re not tied into just one market so if one market is not giving you the return you need you can always pull out your cash and reinvest it somewhere else where it makes sense.

Would others recommend continuing to rent to such a tenant or cutting ties to avoid things getting worse? 

There will likely be around 30k of rehab done to the property, which has been tied into the financing.

It can also make a slightly stronger offer by going with "sellers choice" of title company. 

He is telling me that the bank is “telling him things” that seem to make him feel that his hands are tied and cant sell.

I still have 4k EMD tied up because the seller wants to work things out and left me a vm saying she really needs to sell and would like to work things out.I am looking for creative options in order to obtain this without creating to much havoc.