Bathrooms, toilet rooms, and laundry rooms shall have a ceiling height of not less than 6'-8" above the finished floor"Additionally, in th following paragraph 1207.2.1; it also notes an exception for similar residential conditions which allows "Furred Ceilings" (Ductwork, Structural Beams, etc) to be permitted as low as 6'-4".In Short; the Diagram you posted indicates the correct conditions that would apply to your residential basement. 

Maybe I should just squat instead!

Or would not bother to report a leaky toilet flapper. 

Be ready to pay off the loan, end buyer refi (the reason for a wrap is not always bad credit), sell property, deed back and do a lease purchase option for a while (depending on what state you are in), whatever needed.The banks are not gods - they are just entities that do not care much for their customers due to being too big.Stay safe out there kids this all works if everyone pulls in the same direction and as you note have ability to cure and refi etc. where it goes wonky is when the wrap buyer squats and the sub to buyer has no real means or is out of the deal and also goes dark.. the original seller gets fubared. 

I am curious what shape the house was when it was half-gifted to you because reading between the lines it seems like you squatted in the gift and didn't do any maintenance and don't really know anything about owning or maintaining a house.I also don't know why you want to get a rental and be a landlord when a house you got as a gift is a disaster.

A leak from the wax ring of the toilet was recently discovered and reported.

I have a good roommate that pays on time and just does his own thing.. however a few weeks after he moved in (mid-Feb) I heard his toilet (main toilet) running and found he had hooked it a few links higher so the flap wouldn't seal.

I need to replace the 2 old toilets.

If it looks bad from the outside, they won't want to see the inside.Chances are you should change toilet seats.If you want top dollar for it, probably needs interior paint, granite counters in kitchen and baths, and stainless appliances. 

Had similar situation with a tenant, not as bad but close, and they flooded their entire unit when their child decide to throw 30 wet wipes down the toilet.