Has anyone been in a similar situation or come across anyone that has?

Looking for some insight on this unique situation - I tried to search for answers online and completely struck out.

So, while my research did not find any rental restrictions for STRs I did not discover that they couldn't give me a business license (before we bought the house.)After talking with the City Planner about the situation he told me I could go through the same process that a hotel or B&B does (approval process for Certificate of Conditional Use) but it basically comes down to a City Council meeting which is a public hearing.We discussed the fact that there already were people operating STRs in the city (and obviously not paying taxes to the city since they would not have a business license). 

It is basically being able to spot situations where the property isn't currently at its highest and best use.

Long story short, evicted the tenant, put on a new roof, painted the walls, replaced carpeting, added a 1/2 bath, got a new amazing tenant in place (they have since finished the basement, added security alarms, painted walls, added cabinetry... all on their own dime) paying $850 a month.Fast-forward again to last year.

If I get a response on one of the properties, I will then assess the value and financial situation, see how much they owe and proceed accordingly with a short sale (if possible) or simply buy the house from them.  

I'm just trying to figure out what's fair for this specific situation. 

@Quinton Oake, I am sorry to hear about your unfortunate situation.

I've had new VA clients this year miss out on properties in multiple offer situations by asking the seller to pay their closing costs (against my firm advice to the contrary) because of something they read online or someone told them about VA loans.

Do I have the same situation on the commercial lending side of a lender?