Others have said that emergency money is available - I'd save your legal fees and look into actually getting paid. 

From a protect-yourself standpoint, you need to seek legal counsel on this one but here is my non-legal opinion.  

We would then live in one unit, use two units to pay the debt service and operating expenses, and the fourth unit goes to the lender/investor to pay off their position.

It must be under the owner occupants name and they are legally required to live there.

A realtor keeps contacting me with potential tenants, what is the proper/legal way to turn them down if I don't want to give referral fee?

@Patrick Philip  Most realtors opinions are **** and they cannot be held accountable legally when you make financial decisions based on their advice.  

Has anyone heard of a legal precedent like that? 

I can barely touch the tip of the iceberg on this, but here's the relevant info:Here is an (older) summary from legal counsel:"Once a landlord has recovered possession of a rental unit for either the landlord’s use or the use of a relative, no other unit may be evicted for owner/relative move-in.

He seems to be trying to bull his way through the situation and force my folks to move the tank based on his interpretations of the legal technicalities rather than trying to negotiate.

I viewed the property (as a spectator), but I legally couldn’t do anything yet.