Also, what everyone needs to keep in mind, if you want the best rates when financing your deal, you will need to get a conforming note from a conventional lender (talking residential property).

This condo HOA does the same and they want to limit the rentals to conform to HUD's guidelines. 

They didn't ask any questions to verify occupancy because they were keeping it as a primary (non-conforming) loan anyway. 

What are the risks of investing in a non conforming duplex and how like are they to happen

Sure, sometimes people use non-conforming rooms as bedrooms, but in my appraisals I designate such rooms as "sleeping areas," offices, or dens. 

Since the smaller house was on it's own lot, the city ended up approving, and saying it was conforming.

You'll need to change the use from residential to hotel, which will require a lengthy process that includes physical upgrades and changes to the building.Basically the City wants the property to conform to safety standards for that particular commercial use.

I spoke with someone in the planning office and they said that it was a "legal non-conforming use."

Most banks can do a 75% LTV cash out refi conforming loan.  

My concern is, can any city where I purchase a mobile home park randomly decide to change the zoning so the mobile home park is non-conforming and no units can be brought in?