Most of the demo and frame work have been done inside as-well. 

Homes are only appraising for $80-$90k fully rehabbed, so the contractor suggested I demo the house and donate the land once the tenant moved out.I don't want to give up, but I'm very tempted to cut my losses. 

(budget 50-70k ~ which includes demoing  a POS double wide on the front half of the property). 

The seller is under no obligation to disclose unpermitted work unless you ask.The exception would be if the seller filled out a "Seller's Statement of Property Condition" which is normally attached to the listing, (which specifically asks about unpermitted work) and didn't disclose it, you might have an out.If the seller goes for a retroactive permit, the town could make the seller demo all of the unpermitted construction and start over.If you're already under agreement and there's no provision in the offer or P&S to address this, the seller has no motivation to go for the retroactive permit.  

@Frank Yang & @Ron Flatt the rules that govern loans and the "loan limits" are a combination of the Dodd-Frank, CFPB, Consumer Protection Act, and others (SEC is the Securities Exchange...that's for trading of stocks and what-not).  

If you know this then you should be able to get yourself in the ballpark adding some fluff to the estimate.Are you just replacing cabinets, flooring and counters or are you going wall to wall demo and rehab?

Their contractor dissappeared on them after doing little more than the demo and now the owner is looking to sell it to me for a hot price.

The other option is to demo and build condominiums if you can get the plans approved.

Square footages and prices starting on the left were:1,700 sq ft- 385k1,900 sq ft- 399k2,050 sq ft- 440k2,100 sq ft- 450kTotal development time took approximately 3 months to get demo complete and lot lines approved.  

Yes I was one of his demo guys who went in prepped the homes for remodeling.