I contacted my exchange company to set up my 1031 process, and they informed me I could be held responsible by the IRS for back taxes, penalties, and legal fees if I get audited.

I have plans and engineering ready to go, but have held off on official plan check as I can't seem to get a consistent build cost. 

However, separate property may easily become community property due to the way it is held and managed.

I realise it’s conceivable this may vary based on local law - but is anyone familiar with a prospective tenant being held liable for any amount based on an email assurance that lease terms would be acceptable/signed, then declining to sign a lease?  

All counties have their own rules and contact them to get the details like frequency, the time, and where they are held,Most counties have what is called a "redemption period" of time that the previous owner will have to pay the taxes that are owed. 

Property can be held in a trust.

If you do move forward with an offer I would also see if you can get the security deposit transferred to an escrow account held under an LLC you form for the property.

But my guess is he doesn't want to be held to a SOW that doesn't include everything the architect puts in.

You can always get creative, but you'll pretty much be held to conventional which will require 70-75% LTV.

Upgraded during the downturn and held onto my first home because I figured it would be better to rent it out for a while and selling once the market returned.