If you can't convert the whole place to a LTR, then let it go and find another place.Having said that, is the place split into 2 legal residences?

I have bought a few houses after reading the foreclosure notices in the legal section of the newspaper but mostly I find opportunities by just talking to people.

I haven't ran into an issue like this before especially if you followed all of the guidelines for it to be a legal bedroom such as bedroom size, entrance size, egress, closet, etc.

Something else to check with your tax and legal advisors.

Skipping legal help here, especially for a 50/50 LLC, is asking for trouble.Disclaimer: While I’m a licensed attorney, I’m not your attorney.

Please consult a real estate attorney for legal advice before you act on any comments in BP forums.

Buy a property that perhaps has a legal suite or a duplex.

They then did the STR model (with permits) and are able to cashflow a substantial amount.However, this only legally works while it's your primary residence.I've got other friends that used their VA loan to secure the rare plex in Alexandria.

Legally you can claim estoppel and latches as a defense as they let it go on for so many years and you relied on it when buying. 

There is a possibility that you could keep this buyer under contract (for example if he tries to cause you legal trouble) if he is willing to wait (which he will if he is an investor who was underpaying you what you think itis worth As Is.