It seems that if my parents transfer the property to a LLC in which each owns a 50% interest, the default federal tax classification would be a partnership if we do not live in a community property state and the property is not located in a community property state?

Begin by seeking legal counsel to understand default partnership rules and facilitate negotiations.

While it’s still true that he doesn’t have liability as per the lender; he may be sued by the seller or new buyer if default occurs in our current legal climate.  

Its not advisable to hold real property in corporations, and S Corp are more corporate-like.Just stay with the default partnership and deal with the 1065 and K-1.More importantly, discuss with a qualified professional or two.

Or if you're using STR stays to fill gaps between MTR stays, set the default min stay to 30 nights.

Put simply, it’s how much the VA will pay your lender if you default on the loan. 

Unless he has the funds to repay the HELOC, how would he cover a borrower default?

That will tell you what the current lease agreement is like, if the tenant is in default (not paid), etc.

I have seen the performance record page got updated with all their defaults and recovery which was not made public before.

These won't show up on our personal credit unless we default.