There are two exceptions: Nonqualified use does not include any period of such use that occurs :(1) any time during the five-year period ending on the date of sale that occurs after the last day of use as a principal residence, or [ Meaning, of last  5 years, if you  rented a property of last 3 years does not trigger non qualified use, but in the last 5 years, if you first rent for 3 years and then move in for two years as a primary residence, 2/ 5 years is non qualified.](2) any time (up to two years) that the taxpayer is temporarily absent due to change in place of employment, health, or unforeseen circumstances. 

I would say as a take away for anyone debating working on without a permit or purchasing a property with un-permitted work, this circumstance is not ordinary.  

HM lending is a wonderful tool to be used under the right circumstances 

Residential property is more about control due to circumstances, personal preferences, cash flow, equity build up and debt pay down...holding for term and exiting with cash...Why are you investing and what do you hope to accomplish with this project? 

Regardless of circumstances it just couldn’t be avoided, I had to address it.

If you have investors, I’d suggest starting a separate and distinct QB file for each note.  

There isn't even a thought or decision here... had they come to you with a heart tugging humanizing story at least there is a chance you might consider especially if you feel the circumstances extraordinary, or be upfront and honest about whatever hardship they are facing and perhaps you have a solution that works for everyone - but a threat? 

I am not a lawyer...repeat I am not a lawyer, but depending on the circumstances and your relationship to your partner(s) you may be able to simply collect funds without forming a syndication.

Kind of like the same circumstance in the book, so I did the same thing and said we'd split it 50/50, honestly if he wanted more I'd do it.

Consider this a $100 lesson and move on.Don't ever start an application until you have the money, a complete application (no blanks), and all supporting documentation (proof of income, picture ID, etc.)If you have more than one person applying together (husband/wife, friends, etc.) then you don't start ANY of the applications until ALL applicants have provided you with everything.You should also have a statement that application fees are non-refundable under any circumstance.