We're currently going through formalized eviction with our tenants because they refused to leave so now it's an unlawful detainer case.

I wouldn't need to explain anything to a court judge unless the tenant held over and we filed Unlawful Detainer.

§ 53-244.100(a) provides that “[i]t is unlawful for any person to employ, to compensate, or to appoint as agent a mortgage loan originator unless the person is a licensed loan originator under this Article.†N.C.

The developer is long gone, sold the lots to unsuspecting buyers, who are now punished. 

@Jay Hinrichs: my question is what is the reasonable punishment? 

After trying to enforce late payments (we signed a written stating this) I was told my one of them it is unlawful to charge late payments. 

Mortgage fraud is a federal offense and punishable with a $1 million dollar fine and up to 30 years in prison.

In CA evictions (unlawful detainers) are expensive ($195 filing fee, $15 for the writ, $125 for the sheriff, and $200-$500 in attorney fees).

Legislation like this are unlawful but nobody will challenge it, more than likely.

Essentially, you don't want to "punish" the tenant due to a medical issue but you also need to protect yourself.