My flips are not investments, they are a business, but my returns blow away the stockmarket (this too is a generalization...I am guilty of oversimplification also). 

Ignore any pleads/threats from them. 

Many people use the word joint venture partners (I'm guilty of this too) which is not quite right, as its not a partnership.There is a lot to learn, but the most important thing is to have a proper Joint Venture agreement in place, drafted by a lawyer.I recommend reading this book by Russell Westcott: Real Estate Joint Ventures: The Canadian Investors Guide to Raising Money and Getting Deals DoneSome info might be a bit dated when it comes to mortgage rules and taxes, but the basics still apply!

If you warn them in advance that the fee is non-refundable, it takes away the guilty feeling. 

I’m just saying when they notice those 4 things, all the rest just prove you’re guilty of mortgage fraud and provide an obvious start date to it being a rental. 

However if you pull an easy permit and exceed the scope of work, it’s an invitation for inspectors to write you up and you can’t even plead ignorance.

I think she is asking below market and I feel a bit guilty.

You just cannot go after the borrower for any money and only recourse is the propertyI have never heard of a BK court voiding the security instrument (not sure they have any authority over it) but can wipe the debt which is what ch 7 doesI haven't read the pleadings but I suspect the Bk Tr is claiming 1. the mtg wasn't recorded at the time the borrower filed Bk and therefore was not constructive notice to a bona fide purchaser; 2. the Trustee is in the same position as a bfp without knowledge; 3. because of the first two positions the interest of the Tr is free and clear of the unrecorded mtg holder and the property can be sold without regard to the unrecorded interest. 

Maybe you can write a synopsis on the property, projections, as well as stabilization plan to have the lender plead your case in front of the board. 

His story might just check out or he'll be found guilty and sent to prison.