Generally, the state insurance depts. regulate the Insurance companies, policies, etc... for their state. 

This is true in most Colorado cities that have a similar provision in their vacation rental regulations. 

Should I wait to begin renovating until I am near the end of the action to quiet title procedure or would it be fine to begin work immediately?

It’s brilliant, I just can’t work out the fine details because of my lack of knowledge on specifics on how mortgages are regulated.

I own a home that is rented by an Adult Family Group Home covered by a residential lease in my state due to our regulations.  

In my case, at the end of their lease when I wanted to show the property to prospective long term tenants, the tenant gave me all kinds of grief about 'invading her privacy' and 'disrupting her life' even though I told her at the beginning of the lease that this was our procedure and I made every attempt to 1) give 48 hr lead times, when typically I would only give 24, and 2) blocked/scheduled showings for 1 day per week and 1 weekend day away from dinner time/church times, etc. maybe this was just the person I was dealing with though...- vet the tenant exactly as you would for a normal tenant.

The regulations do not define "held for investment". 

It seems like every town I look in has such strict regulations where you need to owner occupy your unit. 

It's about finesse, freedom, and streamlining your investment flow.Know Your SDIRA PlaybookRules, regulations, and penalties – oh my!

But sellers typically prefer not to retain the buyer's contact information to facilitate a clean transition to the next transaction and avoid potential financial entanglements, It's essential for buyers to recognize that the original owner could reclaim ownership if the property was purchased from a title sale auction, with specific state regulations, such as a 2-year reclamation period in New York, Despite these factors, owner financing can benefit buyers by fostering a sense of connection with the seller.