There are several things to do legally after that.Every county and state is different as far as what they do with tax defaults, which is why you are getting different answers from different people. 

Please be gentle; I'm new at this and it's pretty complex :)Structure / Legal Details- we'd establish market value through a combination of comps from local real estate agent and an appraisal- attorney would establish all required "arms length" aspects including a mortgage at a minimum standard federal rate- LLC would pay us back based on a standard promissory note over 30 yrs Pros of selling to the LLC (I think)- A sale now would be the only time we'd be able to take advantage of the cap gains exclusion on this house bc we won't qualify for the "live there 3 of 5 years" rule due to the timing of our lease and our last time of residence. 

For example In Norristown PA, a nearby not good area, section 8 will pay $1300/month for a 3-BR, whereas free market in that area would dictate something closer to $700 perhaps.Paying for tenants is likely on the edge of legality, but I can understand the motivation.

Lender Fees $1,640.00Discount Points $4,680.00Appraisal Fees $825.00Credit Report Fee $25.00Tax Service $68.00Credit Technology and Verification Fee $75.00Title Fees $836.50Owner's Title Insurance $513.00Lender's Title Insurance $2,507.00Transfer Taxes $9,626.00Recording Fees $519.50Total Closing Costs $21,315.00Prepaid Interest 2 days @ $87.53 /day $175.061 year Insurance Premium $1,500.00Property Taxes $3,632.04Insurance Escrow Reserves 2 months @ $125.00 /month $250.00Tax Escrow Reserves 2 months @ $302.67 /month $605.34Total Loan Prepaids $6,162.44Down Payment $90,000.00Total Estimated Due at Closing $117,477.44Loan ProgramPurchase Price $450,000.00Total Loan Amount $360,000.00Interest Rate 8.875%APR 8.337%Product Indigo Edge NonQM 30 Yr FixedYour Monthly housing breakdownPrincipal & Interest: $2,864.32Insurance: $125.00Taxes: $302.67TOTAL $3,291.99

(Want to be able to have option to legally pursue my costs)My questions:1.

I am not giving legal or investment advice.

That seems like a bad thing for investors, but it actually creates a lot of opportunities AND makes it much less like the foreclosure lawsuit will be attached on constitutional grounds and run up huge legal fees while your lawyer fights those issues. 

Then it all goes away and the company has to eat both the past due amount plus their legal fees. 

For it to be considered a legal (4th) bedroom it must be 70 sq ft/ have fire escape so im thinking it would be better to list it on the lease as office/storage space. 

I don't think this is legal in any jurisdiction anywhere.