If you make a good faith effort to prevent illegal activity by establishing clear terms in your rental agreement, take steps to periodically inspect the property, enforce the terms of the rental agreement, and do all you can to comply with the law, then you should be able to avoid those kinds of fines.

You of course must comply with local codes.

The city is also going to be relaxing their ordinances on new ADU construction in order to comply with the bill E2SHB 1923 that passed last year, which should make new ADUs cheaper to build. 

However downsides are numerous as well1) Capital requirements are highly stringent putting a bit of a cramp in the cost of capital justification for owning a bank.2) Getting a banking license is not easy and a costly burdensome process that subjects to you a large amount of scrutiny. 3) Initial and ongoing costs are huge for complying with regulations.

My CPA simply said that if we got audited, we'd have to show communication where they were not complying and we'd be off the hook, more or less.

I always run my buyers through an RMLO in order to comply.

If they are living in that house, depending on when you did this, you may need to comply with the SAFE Act.

Anyway, I have spoken with my attorneys and each said to comply with the fire marshall's current wishes.... much better than fighting it.

He has not complied with my request.

It will be hard to get all the money back in less than one year, you might consider some additional arrangements with your family lender.Most lenders really don't care how you structure the deal, so long as it is legal, at arms length and complies with loan requirements, so a good talk with your lender up front is in order....:)