My guess is also a leverage cut due to ARV, but you never know. 

I met him many times before awesome GUY but you can definitely tell the dude is the biggest slacker in the world (for example: if he knows that going the long way will benefit him greatly but will be hard in the process, but cutting through the backyard to avoid the long-distance of wearing will be better, he will most definitely take the short cut!

Cut out enough of the old floor, dig and pour a raised foundation? 

It may be time to cut your losses and move on from this real estate. 

My thought is to BRRRR it and refinance, and they get their cut of the equity (which I assume would be split 2:1:1).

As mentioned take a smaller cut to complete a deal if necessary.

This ends up supplementing my income about $1,000/month give or take.

You can say a knife is dangerous because it can cut yourself with it.

Was last year abnormal or you think the normMy guess is you will spend a lot more than $200k on an attorney with benefits etc. but if it cuts down in expenses it definitely is something I would consider and even if it costs a little more, having control with having someone in house does reduce unknown costs and risks. 

If they will "cut corners" by not getting licensed, how well will the quality of work be?