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Yes, you can probably do this. A few medical blips may not be a problem at all, depending on what they are, how old and the lender’s policy. We tend to ignore them if they’re under $1000 anyway.
You can get a home equity loan and use the funds anyway you want. If you’ve already left that home, we won’t call it a home equity loan, but you can still get cash out on rental property, although it will be at a higher rate and a lower loan-to value ratio.
I didn’t get the idea you were considering default, just not wanting to sell in this soft market and that you need to leave the area.