Yeah, this is strange.

A 2nd mortgage foreclosing is a big red flag for me and strange that someone will be paying a 1st position and allowing the property to be foreclosed on.I would dig deeper to make sure there are no other liens attached to the property that when adding all those liens, the 1st position and your inverstment amount does not surpass the property value.If they don't a quick exit is to sell it where there's still money left to get a return.If they do add to more then hurry and rent it get some of your investment back and with luck get some ROI.I stay away from 2nd positions unless you know with perfect accuracy the financial details of what can be attached to that property, it just doesn't make sense that someone with only 2 mortgages will default on the smaller amount and not the first SPECIALLY if theres equity.Good luck!

This may sound a bit strange because I am a real estate broker as well, and I do enjoy getting paid my commissions, but your best bet is to deploy some type of marketing to attract the motivated sellers for the types of properties you'd like to purchase

Is this too small or too strange of a layout to work?

Even the most skilled cat-bride will have few chances of success.If it's an inexperienced cat, then there will be double trouble: he will have a nervous breakdownin the future, it will avoid a cat-bride even in his place.CraigslistWhen you call according to Craigslist's announcement, you enter on strange territory.

There's a whole world of strange people out there...

An owner-occupant requirement like that seems a bit strange to me coming from the zoning department - if you were talking about some other entity government entity like HUD, it would be less surprising.For your reference, I own an investment property (SFR) with an accessory unit in the City of Aurora and have never heard of such a requirement & I don't live at the property.

Barring any strange ordinances or rules by the city your lease states that specifically then you may want to consider returning the deposit minus the costs of due diligence and any other expenses you may have incurred. 

If you know how to use a tape to measure a building and a room and how to put numbers in a spreadsheet, you can do this.If for some strange reason your REIA doesn't have such a sheet, there are plenty available elsewhere. 

Strange situation.