The are losses that need to be passed through to my personal income.

I use the same money over and over since I recover it in each refi.  

Typically, if you only own one or two properties, all your other expenses (maintenance, mortgage interest, property taxes, DEPRECIATION), tend to outweigh your gross income so that your actual net that flows down to your personal tax return is a loss and not a gain.In that case, you get to deduct up to 25k a year in losses (or all of it if you're a real estate professional).Now if your houses are still cash flowing after all those expenses and your LLC really does have a net gain for the year, then that net gain is going to be treated as income to be taxes by the IRS at the end of the year.

Have you developed your investment mode, where your model calculates the Inputs of the investment (cash and time), the Actions (buy outright, down payment for a mortgage, income versus expenses) and the Outputs (profit or loss). 

The lender filed a claim with FHA to be reimbursed the loss of $50,000.

Most likely the buy and build out process works fine but if something goes wrong in the middle of it. your quite vulnerable to loss in this scenario. 5. they are marketing over seas  and those investors are not as intuned as most US investors about what a good deal is what a good neighborhood is etc etc.

It would be expensive to recover my $10k.

You already got $400 that he didn't owe you, I'd be happy/cut losses and move on.How much will this cost to repair versus cost to sue?

The process was pretty typical for loans I've done in the past, except I was actually asked to provide a Profit & Loss statement for the current year to date.  

I would say just cut your losses and start over in FL.