To do that, they would gross up the offer price to include their closing fees like prepaid taxes, bank fees, title fees, etc.

Is that legal to do?

There are many more of this type of property in Durham as older homes with basements are still price accessible.To make it a "legal" or permitted duplex, the process is definitely cost and permit intensive, and in most cases may require you to use a GC or similarly licensed tradesman for parts of the project.

I would like to legalize it and was wondering if anyone would be able to give me a rough estimate of the cost to convert the property to a 3 family.It does not have a sprinkler system. 

Here are some tips that may provide a little guidance:Understand legal requirements and zoning laws, some municipalities have specific rules about where these homes can be located and how many residents are allowed.

, I'm seeing a lot of "Please tell me how to do this complex legal thing so I don't have to pay an attorney to do it."

If it wasn't fraud but simple incompetence (and he lost the money), then that isn't a crime and your options are more limited.Your legal contract (and/or the state laws the entity was incorporated in...depending on where) most likely requires the sponsor to share books and records with you (so you can at least know what happened).

Where the property does not currently cash flow, would getting and paying for a personal loan in my name, lead to potential cause to pierce the vail in a potential legal dispute if all the expenses associated with the loan is ran through the LLC?

To properly wholesale, legally wholesale, and morally wholesale, you need to double close.  

I'd certainly ask for one first, before going the legal route to try and collect.