My process might be more complicated than what you need but it’s the way I keep the paper trail straight. (1) transfer the full deposit account balance from tenant security deposit account to business checking account. (2) write a check for full security deposit account balance less any deductions for damages if applicable.

The house is straight out of 1970 so I planned to completely redo anyway when she leaves (even if every surface wasn't nicotine stained.)

Is it pretty straight-forward?

You may have better luck with the water claiming it as a straight water loss.   

Why don't you have a couple of brokers come by to give you their opinion on value -- As @Charlie MacPherson points out, you're probably off on your valuation.Keep in mind, some banks won't let you putt out all of your cash in a refinance -- plus you might not want your monthly payments to be too high.Go to a small, local bank for a refinance.

Maybe have a list of questions to work into your conversation if thats your concern but a straight up “Hello Mr/Mrs X I am calling about 123 Main street...” not effective.

These hours learning how to use sweat equity could potentially be invaluable on your first few deals because thats straight labor cost you are saving if you know how to do some of those things.

I asked the tenant straight up if he was smoking pot in the house and he told me no.

Also, be sure that you are seeing the complete listing - some sites like Zillow will sometimes only download part of the listing details from the MLS (if its listed there) and put up some generic county tax photo or streetview image versus what the agent really submitted.Again, if it wasn't for the streetview image, I would give them the benefit of the doubt, but that's just straight lazy.

The negative aspects of these transactions were plenty: the parties had to wait 3 - 6 months for the lender to respond; the homeowner had to be behind on his mortgage already so his credit was hurt; although the lender would ‘forgive’ the balance of debt, the forgiven debt still appeared on the sellers credit report; and the buyer still paid market price for the property.With home prices having gone straight up the last 10 years, there are few situations in which the home owner is upside down, which of course is a prerequisite for a short sale.