I think expecting more than a minimal cash flow or even a loss over time is unrealistic. Everything has to go right for you to get the $400 a month. Operating expenses, not including principal and interest payments, typically run around 40 percent of gross income for newer townhome properties. You can self manage to reduce that number, but you will still have vacancy (even if it is just turnover time), collection loss, repairs and maintenance (including capital improvements such as paint, carpet, the dishwasher, etc.), and the taxes, insurance, and HOA dues. Your HOA dues are very low, which says either your HOA does nothing to maintain the property because the owners are responsible, or that you will get large assessments when work needs to be done.
You mentioned you are in South Carolina. Is this beach property? Is there another reason the occupancy is so high?
Generally, banks are not in the mood to foreclose right now. Over time they will be very interested in getting out of that 3.5 percent loan, particularly if the loan to value ratio is low and there is substantial equity.