The tax " penalty" will probably service the debt difference on two singles over a duplex and .you get better tenants.

In Seattle this is no longer legal. 

The buyer is a partner in another successful business, and does have income, but is refusing to use his other income to pay the debt.Current debt is about $180,000 with interest as calculated if the note was performing; however, there are provisions in the note that it goes to maximum legal interest if it's in default, so with that plus late fees, it comes to more like $220,000.I've had my attorney review the note. 

If I were to rent out 2 of the 3 bedrooms I have in a place I own, how would I cover myself (legally) with a contract.

This creates a legal entity that acts like a bucket you can put things in.

Stop gratification spending put that money to debt.

It would probably also be more valuable if you can find out what is legally buildable (height, footprint), what logistically works on the lot, and possibly even some ballpark quotes and contacts.

And then, a jury trial date is set in another three weeks (not sure why it was being granted as we have all the evidence to prove that the tenants have not been paying rent)Our lawyer advised us new fees for the jury trial... we have already paid for 2 trials, a sheriff eviction.... but I cannot see the end of it (since it seems like it automatically granted the tenant's right to drag the case and continue to live in our house for free ..) not sure how much more are we going to pay for the eviction legal fees and how long it's going to take...

Does anyone know what my legal rights are here and/or the tenets?  

It is better for them to get half the profits than no profits, and you gain invaluable experience as they take you through the process with them.DO NOT go half-cocked and mail without having an understanding of the legal requirements for your area for assignment contracts.