Now that you've gone through this, have you set up any procedures prior to buying the property to avoid this?

You will need to show proof that your living there and that the home that was your previous primary in now on listed on the market for sale or better yet, sold, prior to your refinance closing. 

The wholesaler which is also a realtor stipulated that he is in the process of having the fines reduced by the county prior to closing and having the buyer pay those costs (lien) at closing.

I wouldn't do it unless you got a good deal, remember the banks going to let you refi up to 80%,also the property has to be rented out for 6months prior. if I were you I would aim a little lower with price jus incase any unexpected repairs and cash reserves

Rent is way too low compared to cost to justify keeping. 

We are in the middle of our 1st/2nd deal right now and thought we would open ourselves up to questions and comments while we are in the thick of things and can give some specifics regarding FHA/duplex purchase and we are both self employed at 30/35.We were living in Germany (I am a German citizen, my wife is American) prior to making the move back to Cleveland in 2013.

I made it clear in an addendum I added to the lease that it was an unfinished basement and any and all improvements that they want to make or do make have to have prior written approval from me or my husband as well as permits and insured licensed contractors for electrical, plumbing, etc.

I did a decent amount of research in PA before deciding to stick in NJ, I'm glad I stuck in state but cant fully compare since I never purchased out of state.

If you live in a property you own for two out of the 5 years prior to sale you can take the first $250K ($500K if married) in profit tax free. 

Now if you and the LLC purchased the property as tenants in common (LLC 75% and you as 25%) then you would be living in a piece of real estate that you own and when it sold you could indeed take the portion that you owned and lived in tax free once you could establish that you had lived in the property fro 2 out of the previous 5 years prior to sale.