I have heard some people could do their books differently and more complex which potentially could allow for it to be LTCG but there are many gotchas involved such as phantom taxes involved with loan modifications.

If the community you choose has more single family than multi family then you can find a house with tons of bedrooms and perhaps make some modifications to make it conducive for having several roomates (this can actually generate a TON of cash flow), you can look for single family homes with in-laws allowing for you to live in the smaller in-law and rent the main house for maximum income (we've helped many clients achieve this!)

., the 12-month occupancy requirement for a Primary Residence), andThe Servicer notifies the original owner or natural person that the Mortgaged Premises transferred to an LLC/LP must be transferred back to the original owner or natural person prior to any subsequent refinance or modification application to meet Freddie Mac’s underwriting requirementsThe Servicer has complied with all mortgage insurance requirements applicable to the transferhttps://servicing-guide.fannie...a limited liability company (LLC), provided thatthe mortgage loan was purchased or securitized by Fannie Mae on or after June 1, 2016, andthe LLC is controlled by the original borrower or the original borrower owns a majority interest in the LLC, and if the transfer results in a permitted change of occupancy type to an investment property, such change does not violate the security instrument (for example, the 12 month occupancy requirement for a principal residence).

Maybe it is a short sale or a loan modification and you can refer it for credit later. 

As per Code, you need to submit a modification request to Municipality /County office and get a permit to keep a door that can serve the purpose of what you intend to do, as for Renting the SFR as 2 units is not legal, for which you will have to take up additional permits and ensure the 2 unit criteria is met.

Hi Jamia,Any Permits pulled, or are there illegal modifications (???)

There are several different types of loan modifications, but the point is exactly as it sounds (to modify their existing loan)

With that in mind, You probably need to try to contact the homeowner to see if you are going to work toward a modification or foreclosure.

(you pay)A reasonable modification is a structural modification that is made to allow people with disabilities the full enjoyment of dwelling units and related facilities.

Installing baseboard heating usually is more cost effective than the additional modifications need for a boiler system that would result in the tenants being responsible for heat.