Would have to go through a court process if want to negotiate a different amount 

Yes, you will have to pay taxes back for the depreciation amounts should you sell in the future. 

Terms are not going to be super aggressive due to the fact that the rehab amount is larger than the purchase price though.

I would say that multi-family would be the easiest to wholesale due to how many there are in each metro market and the amount of MF buyers nationwide. 

Raising capital thru syndication is a lot more realistic if the sponsor has a significant amount of their own cash to invest.  

Selling a primary residence and then buying it back as part of a 1031 exchange could raise red flags with the IRS.Your parents have a valuable opportunity to defer a significant amount of taxes by utilizing the $500,000 exclusion on their primary residence.

Once we had the home inspection I was able to have the seller credit us at closing $8k...of which the escrow could not credit the entire amount and so I had the seller write up a personal check for $2000 How did you finance this deal?

What is your price range/down payment amount?

Probably approaching $100k in total.My options seem to be sell and pay an additional ~70k out of pocket to the lender (underwater amount) or make the repairs and hope the problem is corrected once and for all.

(You said you plan to buy it for the amount of the loan, not the value of the property.).