However, the lender would need to comply with Foreclosure Laws, notice requirements, etc. if they needed to enforce their mortgage due to a default. 

and enough space in front to comply with code? 

If the money is used for consumer purpose there are a boat load of disclosures, licenses and regulations you need to comply with.Also, what is the value of the collateral, if should be substantially more than the loan amount or you could become partially unsecured both as a practical matter and subject to cram down or lien stripping if borrower decides to file BK.Also, if you don't have a deed of trust to go with this note it's unsecured, it then becomes expensive toilet paper.Also, you should get the deed of trust insured with a ALTA lenders policy.Also, this may be a personal thing but I like monthly payments, not everything at the end. 

Also, technically they have failed to comply with the lease by smoking on the property.

If the landlord doesn't comply, the tenant can go to court and may be entitled to three times the amount of the security deposit or the remaining balance to which the tenant is entitled after lawful deductions with interest, plus court costs and reasonable attorney’s fees.

They have to be burdened with having to comply with such nonsense and extra expense.  

However, this tenant has not complied.  

If my recollection is correct, your investor may not need to comply with MLA. 

There's a way to execute the documents in such a way to comply with Title company's guidelines put forth by their underwriters.  

We also wait before granting the borrowers a permanent loan modification until either the 13 or 25 months so that if they comply with the trial modification or forbearance agreement then the chances of them defaulting decreases.