I'm thinking my best bet is to pay them down as much as I can.  

They have seen a lawyer you NEED to get  a lawyer involved immediately for this. 

Long term goal is to get involved with enough buy and hold rentals to generate passive income and, ideally, financial freedom.

That’d be worth 3-5k to you I bet.

Account Closed we use attorneys in the Chicagoland area but once you go down south near Urbana or far west attorney's are not involved. 

But, some people told me, if city involves, they will destroy all the walls and might set a fine because I did not ask for permit and all the works he had done are wrong.

Another option is to go ahead and get involved with Keller Williams or Coldwell Banker.

Second is if you have a problem with that room resulting in a lawsuit then I bet they look to see if the room was up to code, say like an a electrical fire.

Analysis:Rental of Other Property Not Securing the VA Loan Rental income verified as stable and reliable may be included in effective income.If there is little or no prior rental history onthe property, make a determination based on review of: documentation of the applicant’s prior experience managing rental units or other background involving both property maintenance and rental any leases on the property, and the strength of the local rental market.

Add that to your documentation.If illegal drugs are involved, it might be worth your time to contact your local law enforcement.