Luckily, if you have lived in this home for at least two years, you can sell the property and use Section 121 to exempt up to $250K in capital gains (or $500K if you are married filing jointly). 

You have have given notice to the tenants that the property they reside in is exempt.

While we are exemption from this ordinance because we only have one rental unit, we don't want trouble.

As for you SEC exemption, I would talk with an attorney about pro's and cons of various structures.  

To elaborate, there are statutes and administrative regulations (found in Fannie/Freddie guidelines) that provide a laundry list of exemptions from them calling the loan due to a transfer in title (EG divorce, death, inheritance, asset protection/estate planning).It sounds like they misunderstood your question as you asking that you wanted to transfer the loan, which you've obviously clarified on here. 

Due to my research, it seems this owner claims a Homestead exemption on this Orlando, FL. property in addition to a split Home owner exemption on an additional out of state property for at least the past two years.

There is also a $1,000 exemption against UDFI. 

You have benefits like the homestead exemption and you can be sure a landlord won't raise your rent or ask you to move out to renovate, etc.

I found a website that listed the exemption similar to what was listed above, by no means a legit HUD /FHA document. 

You may also want to present a detailed breakdown of the property's current condition and any factors that might affect its value negatively.Explore Tax Relief Programs: While you mentioned that you don't qualify for tax breaks as the property is not your primary residence and you're under 65, it's worth investigating if there are any other tax relief programs or exemptions available in your area.