The other option you can try is an FHA 203k loan, which is a rehab loan. Not many banks offer these, so I suggest you check out wells fargo or go to a full service mortgage broker like RMS. The caveat is that you cannot do the work yourself. It must be done by a professional contractor and completed within 6 months. This is the loan I recommend to most of the buyers who need financing for bank owned properties that need a lot of work to be livable.
Question: Banks don't do assessments. They do appraisals. If the bank appraised the property at $130,000, then why are they saying it has "no value"? The town assessment, though, is worthless. That's done solely for tax purposes.
Question: How'd you get $225,000 of insurance on the property? Insurance companies don't intentionally overinsure a property.
As a last resort, consider selling it "as is." If it's worth, say, $60,000 or $80,000 or $125,000, then at least you'll get something. If you "walk away," you'll end up with nothing.
Hope that helps.
I'm sorry to hear that you are still having trouble getting a home equity loan. I think the last time I responded to your question, I suggested that you give me a call so I can put you in touch with expert lenders who may be able to provide you with better assistance. My offer offer still stands: call me at Coast & Dream Properties at 207-251-4566 and I will point you in the right direction. You don't have to choose to do business with this lender that can't seem to offer you what you need. Please call me.