The U.S. subsidiaries of three of the Big-5 Canadian banks (TD, RBC, BMO) will lend to Canadians based upon your credit history and financial resources here at home (with some limitations/restrictions).  

Last thing I want is to get a duplex only to realize it's only legal to have a SFH in there.

This is not legal advice:They'd contact you to negotiate a settlement if they plan on closing.

That $1000 could either be refunded to us or credited on the next tax bill which we chose to do the credit. about a month later the lawyer who completed our transaction sends us an email saying the sellers lawyer knows that we ended up getting a tax credit and that it is owed to the sellers, and that they would take legal action if we didn't refund it. basically my question is how does this usually work out, are they entitled only to a prorated amount of it, are they even entitled to any of it?

You may have to get creative...find a duplex in a good area and Airbnb the units or find an SFR with a legal accessory dwelling unit and live in the smaller unit while renting out the main etc. 

But,  the owners have the legal right to the house. 

Has anyone partnered with an owner to flip a house and if so I did you legally structure the deal?

He's always had that 'hustle', it just took him some years to apply it to legal endeavors like motorcycles and car audio, haha.   

Throw in syndications and private money and you can see the similarities.The reason I bring this up is because it seems like there is a very thin line between legal and illegal practices sometimes especially when it comes to borrowing money or raising money to invest.

Every other post on BP seems to be about "wholesaling" with little thought of legalities, let alone the damage done to the public.