Actually, BOTH scenarios push this into commercial:https://guide.freddiemac.com/app/guide/section/5601.2See:(a) Ineligible property typesMortgages secured by the following property types are not eligible for purchase by Freddie Mac:A 2- or 3-unit property with an ADU that does not comply with zoning and land use requirements (illegal zoning)A 1-, 2- or 3-unit property with two or more ADUsA 4-unit property with an ADU

Once you have the number of your potential tax hit (and, by extension, how much you can defer with a 1031 exchange), you can compare that to the effort you'd have to make to comply with California.When it comes to making sure that your potential exchange is buttoned down, that is largely a matter of working with the right QI partner. 

If you accept, the entity that you are requesting information from has 30 days to comply and fulfill your request from the date all monies are paid and you have answered any/all questions they have about your request.If they deny your request, you are more than welcome to submit a modified request.

If you are in OC (not Santa Ana), you probably don't have to worry about rent control unless the law changes at a later date.3) Check your lease agreement for wording about rent increases and comply with the terms.4) Make sure Newsom hasn't declared a state of emergency...which often trigger rent freezes.5) Once you confirmed that your condo is exempt and no local protections apply, send a rent increase notice for any amount.

There is one guideline I don't fully understand which makes it hard to know if it's satisfied, which is "The Servicer has complied with all mortgage insurance requirements applicable to the transfer." .. not totally certain what that is, any idea? 

I complied a few different points from different sources, including our Director of Investment Services thoughts and opinions.

Comply with the order from the City, or you are likely to face fines2.

.- You need to deliver the following to the tenant:Partners in Good Housing guidebookYou must give new tenants a copy of the Partners in Good Housing guidebook.Housing requirementsAll rental properties must comply with the requirements in the Partners in Good Housing guidebook.

I’m guessing the agents brokerage reminded her and asked her to comply that’s why she asked for it then and not earlier, or it’s a brand new requirement enacted since they first started working together, or some other logical explanation which if given the chance that agent probably would have been able to explain. 

You are better off waiting until this renter is out, cleaning the place up, and then showing it vacant.Your lease should include something about the tenant maintaining the property, you should inspect every 3-6 months, and you should have consequences for tenants that fail to comply.