The seller has the two lots legally separated, but due to deed restriction imposed by the subdivision development, found that building a house on the “tennis court” lot was not allowable. 

As European residents, we directly manage investments, leveraging the fiscal and legal advantages available in the EU.

Is the basement legally considered living space?

I very quickly had to reorient him to my reasons for dissatisfaction, to which he offered no remorse.

You've signed up for one PIA if the owner is still in the house.One way to tippie toe into this is to hook up with short sale agents and start working with them offering to door knock the NOD folks. 

And, then offer her some cash to sign the paperwork.

If you need help with the process, you can contact Consolidated Civil Enforcement - they have a ton of experience helping landlords through the legal process.

From this perspective, yes, I am still legally responsible.But how can both people be legally responsible for the same loan?

LLC offers better legal protection.3) Setting up in states that allow your identity to be hid is also overblown.

There are a lot more things that occur as part of the contract that would be included including valuations for each parcel, specific tax consequences, proffers offered to the city etc.