Here are the Fannie Mae guidelines for legally non-conforming properties:If the Property's characteristics are legally non-conforming, you must:ensure the Borrower executes the Modifications to Multifamily Loan and Security Agreement (Legal Non-Conforming Status) (Form 6275);confirm whether, if fully or partially destroyed, the Property's Improvements can be fully rebuilt to the pre-casualty condition per current laws, zoning requirements, and building codes; and if the Property’s Improvements cannot be fully rebuilt to the pre-casualty condition, evaluate if the as-rebuilt Property will support the Mortgage Loan at the current Tier, and document your analysis in the Transaction Approval Memo.To assess the Borrower's ability to rebuild Improvements on a non-conforming Property to a level that will support the Mortgage Loan at the current Tier, you should consider: conducting a threshold analysis to determine the resulting actual amortizing DSCR if the reconstructed Improvements cannot be rebuilt as-is per current law; the likelihood of a casualty event (e.g., wind, earthquake, fire, flood, mine subsidence, etc.); the percentage of damage to the Improvements at which the Property’s jurisdiction will require the Property be rebuilt to current zoning and land use requirements (i.e., the destruction threshold); which Property characteristics the destruction threshold percentage applies to, such as market value, assessed value, replacement cost, or unit count; for Properties with multiple buildings, if the destruction threshold percentage applies to each building, or all buildings as a whole; the replacement cost to rebuild per current requirements for zoning, and land use; the Property’s continued marketability, and economic viability; the amount and type of Borrower-maintained insurance coverage required per Part II, Chapter 5: Property and Liability Insurance, Section 501.02C: Ordinance or Law Insurance; insurance loss proceeds payout, compared to increased rebuilding costs, including from building code changes, Americans with Disabilities Act compliance, and the municipality's local zoning requirements (e.g., green compliance for new buildings, etc.); the sufficiency of estimated insurance proceeds from ordinance or law insurance and other coverages to repay the Mortgage Loan in the event of partial or full casualty, or condemnation; and for a Tier 3 or Tier 4 Mortgage Loan, if requiring execution of the Limited Payment Guaranty (Form 6020.LPG) would mitigate the risk of the as-rebuilt Property not supporting a Tier 2 Mortgage Loan.

You could try to reach out to the city department responsible for it to rectify it, but if the tenants have already done so and they've confirmed nothing is wrong...

These are very common errors based on public record and that's why an agent should confirm details!

@Brandon Bruckman, I heard back from my CPA and she confirmed that I can pull up to my basis out of the REIT by selling REIT shares/units without incurring any capital gains taxes since it is considered a return of capital (ROC). 

I can cover my mortgage but are there other ways of financing this project without burning my cash reserves?

@Matthew Samson, I'm all for burning the ships and going all in, but with this in mind, hopefully, you have some reserves saved up.

All we would like to do before repairing the ceiling is to get his confirmation that he no longer experiences any leaking.

How can I confirm if they have received my application package?

Setting a reserve price and then having an open house the day of the auction to accept bids and hopefully find a direct buyer. 

When I’m listing agent, I ensure EMD is received per contract (usually 2 business days) with confirmation from escrow agent.