I can probably cash flow the ADU at around $1k a month but of course I have to wait around a year for it to be built but I'm ok with eating the payments during that time.

If a borrower stops paying on that first mortgage, and then the lender goes to foreclose, any equity that might have been had in the property is now gone because default interest, late payment penalties, legal fees, etc will eat up anything left after the principal balance of that first lien is paid.

I suppose you could take that if you need/want the cash to ride out the vacancy and refi later at a presumably lower rate than the 8.75 but you'll eat the appraisal and finance costs....

If this is your first one and it's eating you alive, it may be better to just sell, and look for something where the numbers do work. nothing down is great in some cases, but if it leaves you in a spot where you just can't get the property profitable, it's not.

Build long term wealth and make sure your kids and their kids eat off it forever 

So you are not obligated to pay anything.... but sometimes in business to make customers happy, you have to eat a little $$ to keep the relationship happy.I would give the $200 gift card to dinner as a "thank you for your understanding and to make up for your inconvenience"....not " we owe you $200 because you couldn't use a small section of the unit we provide you to live in due to something that we have zero control over"

I would just have to eat a high interest rate by doing so. 

Be able to eat at thanksgiving with them. 2.  

I'm considering trying to get out of this, and take some loss, or, after the rehab is done, cash-out refi to pay off the high interest loans, and just rent it and eat the monthly loss. 

How many of these same owners ONLY eat at the cheapest restaurants or buy the cheapest groceries?