The property is a legal two family, but the bottom unit has a basement space with a full kitchen, it's own entrance etc that was being rented out essentially making it a 3 family. 

We had our separate entrances and we didn’t allow our guests to use the kitchen so it was more private for us.

The foreclosure auctions/trustee sales were held outside the downtown courthouse (near the east entrance). 

(Separate entrances, two kitchens, separate utilities, etc.)The first speed bump came with the appraisal.

It had three bedrooms upstairs, three downstairs, plus an office and several separate entrances.

It has its own entrance.  

And while on the phone with them, I realized I can build a wall in the foyer creating a separate entrance for us ( 1st floor tenants ).

the way the entry door opens, you will see into the larger space, but if you are going through all of this work, and you don't like the door opening to the wall (again think of the swing of the door, where the person opening the door would be standing, which will open to the large space and direct guests in that direction), why not completely remove that door and put the main entrance on the other side by the dining or living room off the driveway? 

Allegedly my tenants boyfriend made copies of the key to the main entrance to the building and also to her apartment without her knowledge.

I don't know what the housing stock is like out in LA, but in Denver and Colorado Springs, we find a good number of homes with basements that have a separate entrance so you can Airbnb or rent it separately while you're there.