I have a many reasons why I'd like to invest.

From your short introduction, sounds like you are ready for the task.  

Also seems like a lot of MF sells occupied with tenants in place so you just have to comfortable with that and contracting up from and seeing inside after contracting.    1st step is to find a great lender and get pre-approved for a loan so you know what your budget is. 

You might want to speak with the owner of the house next door and let them know you'd like to buy it.

I’m just concerned of legality of basement unit and like you mentioned permitted status.

Like myself, REO listing agents just want to work with solid buyers who can understand a few points about buying REOs.For example, REOs use contracts that forbid assignment.

Sounds like a good opportunity but I am tied up with my own stuff...Under 100kNeeds: Roof, some plumbing and electric, kitchen cabinets and counters and a vanity He put in a good amount and has a project underway but just wants out. 

Guys like Jay who has done things like been a guest speaker in our mastermind group, Dave Foster who knows 1031s and can help with them but doesn't push anything, Michael Plaks who provides all kinds of good tax info unprompted.

The better your solution, the more likely you are to get the deal.

It does seem like it is such a significant misrepresentation though, I wonder if getting some confirmations in writing helps.