First of all, I am sure there are some key learning opportunities you took away on properly vetting tenants and figuring out the Chicago Landlord-tenant ordinance (i.e, move-in fee).I'd just talk to your tenant first and see if he can be reasonable, then resort to cash for keys.

You would only pay him when he has successfully completed a phase of the work satisfactorily, including inspections where applicable.Secondly, if you have a proper contract, it will be easy to just suspend the work, fire him ,and hire another Contactor.

Is the HVAC and water heater broken and functioning properly or is this just due to age?

Take ownership of your mistake and learn to do the proper due diligence recommended above😊

Additionally, a good broker will make sure someone buying a $1.2MM property is not a tire kicker, and has a preapproval or proper proof of funds. 

My plan was to sell the property next year, but wanted to pull some cash out prior to selling to help minimize the capital gains tax.Is there a proper name for this type of loan product that I should be looking for?

Both fair and properly incentivized in our minds.

Was hoping someone could provide some recommendations for how to go about doing the proper research outside of the US.

You would need to talk to a CPA. 3) Yes, states have taxes as well and mostly function the same as federal.  

In Texas, like @Steve K. said, you are a customer without an agreement and you are a client with an agreement, meaning with an agreement they have "fiduciary" duties to you and you will be properly represented.