What if something happened in escrow #1 - the deal where I was buying the property that prevented me from transferring clear title to my end buyer (escrow #2)? 

One of the things you got to ask yourselfthis seller has financial difficulty and how can you protect the new tenant buyer if you do find a tenant buyer, to prevent the seller from not paying the mortgage?

But there are numerous things that can prevent it from going FHA without the seller fixing it in advance or you going 203K.Your mortgage broker is like your realtor.  

@Andre really there isn't much I can say that will help you in your current situation; however, I have some thoughts going forward with regard to what you could have done to prevent this from being such an urgent and important situation.  

Mostly looking forward to hopefully some additional income as currently my (our) DTI is preventing me from investment purchases since I'm the only income. 

However you want to do it assuming there is not regulatory law out there that prevents a certain kind of labor (think needing a RE Broker's license, or being a RIA)4) What happens when one partner wants to sell a property and other one wants to hold?

I'd explain your dilemma, ask if it will be a problem complying with a no smoking policy, then maybe compromise if they say they won't stop, like you'll take it month-by-month with them, but if there are any complaints about their smoking or it's causing problems where other units feel they can smoke, too, or preventing people from living there to avoid the smoke, then you'll have to give them notice to leave, no matter how much you'd like to accommodate.  

I think the best way to prevent this is to make sure you have quality tenants by pre-screening, which I am sure you are doing already and setting guidelines and rules up front so they know you mean business.

There is no law preventing you from calling them back.

Alarms typically prevent or minimize theft claims.