If I understand this correctly (and probably I do not) then the bank agrees to take the house back instead of foreclosure, essentially settling the debt without the legal proceedings. 

Essentially I made a listing post, kind of like you would on LoopNet, and provided some info on the property and my planes for it.

This is the case with a lot of the local HMLs as well.You're essentially doing the BRRRR strategy here, which I usually recommend folks figuring out their refinance first before looking at hard money to buy it. 

I understand that I now essentially have $15k but I also have a larger mortgage.

With the 5% program essentially gone the only option for low money down being FHA... with low loan limits and hard to pass self-sufficiency tests the program is very hard to do. 

They will exercise their option simultaneously as my end buyer is buying the house outright ( essentially, they are selling their option at that time).

OR should I sell the condo and put money down on a new house and live in it and then Essentially upgraded from the condo to the house im in now as a rental property ?

I'm very good at design and development... which is essentially problem solving in my opinion.  

Often there are gas leaks, busted pipes, where the need to get to a responsible person is essential.

With a wife and kids though, getting started on critical tasks early and priming the day is essential for my mindset and success.