It sounds like the first buyer may be trying to use the threat of a lawsuit as a scare tactic to try and get you to sell the home to them.

It really should not be an issue if you are upfront and honest, basically the rules are put in place so nobody gets taken advantage of.2) Would not be a bad idea to consult with an attorney and have some contracts written up that protect you from any lawsuits when you are wholesaling. 

Thank you everyone here for the Advise & help.just an update i spoke with my Attorney today he said the buyer can definitely NOT beck out at this point if anything i can void the contract due to him not sending the EMD but the buyer cannot. there is not much i can share publicly but do to the specifics in my contacts the buyer is still bind to the contract & he has to close otherwise he can face a lawsuit at least in my case. but one thing i learned for sure its always good to ask a professional attorney because sometimes even if you think its a lost case it can still work in your Faver much more then what you know.But again i appreciate everyone's advise.

I haven't wanted to hold title to real property in my retirement account because of lawsuit risks, and the inability to claim depreciation. 

Plus I think Covid threw off a lot of things...from the lawsuits, to people being in the office etc.While you would think there are a lot of standard procedures and same law applies all over the state, I find this less than true. 

The buyer admittedly cannot close so attempting to tie up the property with a lawsuit isn't going to work.

A lawsuit will not do much as the original lender will not release the lien or obligated too.

I have found a couple options with either partial or full basement/ "in law suite" which I have placed offers on.

If you can't buy a 2-4 unit that works, buy a single family and make an in-law suite.

The various Casitas, mother-in-law suites, ADUs built before those recent statewide ADU rules had different rules applied to them.