If the mortgage was "written off" he should have received some documentation from this mortgage company to that effect.

Account Closed, the qualified intermediary must be in place prior to closing of the sale of the relinquished (old) property so the exchange can be documented on the settlement statements and the client not have actual or constructive receipt of the proceeds.. 

They will also prepare all documents, facilitate the transfer, and convey all funds to the Lender

If you don't include it as a condition, and your agent doesn't, then it may not be included.The other things I would check on is: Do you physically have to be here in person to sign the closing documents or will they allow electronic signature and affidavit from out of province/state?

The international property maintenance code which is the document many building department use for determining overcrowding complaints is based on the followingMinimum 70 square foot bedroom 1 occupant Minimum 50 square feet per person for two or more i.e. minimum 100 square feetIt does not address ages or relationships Many zoning ordinances have rules of more than 2 or 3 persons unrelated by blood is a violation.  

If the numbers make sense and I make an offer and it goes into contract, at what stage do title, document and physical inspection take place?

Read the legal documents to find out rights.60% occupancy, in today's hot market, is either an extremely poor location or is extreme negligence/fraud. 

Grout was poured and the foundation stabilized/fixed (structural and engineering documents for both provided).

This was do to Vera being able to quickly get me requested documents, inspections, and referrals to completed the acquisition of the building.

Relying on your tax professional's advice should relieve you of any fine because you were not trying to do anything nefarious.On the negative sideYour activity in subdividing the property makes the acquisition look more like developing and if your intent was to turn that replacement property into lots and sell the lots individually then that would not only disqualify the current sale but there could be potential (depending on how everything was structured and documented) ramifications on last years exchange also..