I would also ask all contractors about how their draw process works (red flag is: 1/3 up front, 1/3 at half way, and 1/3 at completion.  

This is a huge red flag. 

I wouldn't characterize it as bad vibes, just weird, numinous feelings, like you can feel the history there.

I’m not saying he isn’t right with the loophole (I agree and interpret it that way as well), it’s just so new that possible audit flag and a lengthy court case?

That was when all the red flags started coming.

I'm trying to plan this out as well as possible to avoid any issues down the road.I've seen the stories where people run into issues meeting this requirement and get scrutiny from the IRS, to me it seems the two biggest red flags might be when they hire a property manager and also when they rarely go out to the property to work on it themselves, always relying on contractors.

On the other hand if they are a sponsor that is experienced in stopping a skin in the game, that's a huge red flag for me.c) how open to scrutiny are they?

Applicants offering to pay a year of rent upfront is a red flag.

However, the Section 8 tenant I was moving in had a 4 year old and they flagged it and I ended up having to scrape and paint it to get approved for them to move in.

Bryan, it sounds like you're in a tough spot, and there are definitely some red flags here, especially with the property already being sold and the lack of communicationYou mentioned the borrower has many properties across states.