Let's assume the new value of the property is $550k - $575k (conforming loan limit in our county is $453k)Appreciate any help!!!

I'll need to learn what laws or rules that I need to conform to as well as pitfalls or problems to troubleshoot.  

When he applied for permit to separate electric panel, the city said it is a single family and gave him violation for the non-conforming unit.

They go by loans in the conforming Fannie/Freddie market.

If you buy it, you may be able to fight it being it was approved as two lots in the past and just makes them 2 non conforming lots.

They're less likely to sell their paper, which means it doesn't have to conform w/ any underwriting standards other than their own.

No, they need it to conform at closing so the bank can sell it fast. 

Don't mess with the property unless you do it up to code and w/ permits..... if you do mess with it... you loose non conforming rights to the building... and you will be liable for it...I still don't see the question... unless you just want input...

If you really have that much cash, you could expose it in your P&L, and create a $1.5 MM credit line, and other collateral to secure it.Now you can go wild by making offers every day (take off Sundays) on houses, non-conforming real estate, commercial properties, lots and businesses with real estate.You if you are really savvy, you could double that money in 6 months (or call someone with the smarts to help you!)

With new ownership see if the inspectors would give you some time to conform and look at increasing your income throughout the units in addition to signing new leases with the tenants to make sure you don't end up vacant at ownership.