Contracts formed for an illegal purpose aren't just "voidable", they're automatically void.That means that you don't have a leg to stand on in court and that you can even be sued for "fraud in the inducement" (you didn't have both the means (money) and the intent to close on the property). 

Again, if you qualify - then you absolutely should claim it, just have your ducks in a row.Other audit flags are kind of common sense: forgetting to include 1099s, rounded numbers, populating every single box in a form, identical numbers across multiple properties, using the wrong form, etc.

If the LLC is just you and your wife It has identical ownership to you and your wife as individuals. 

Each unit is an identical side-by-side 2br/1ba w/ 1 car garages, surrounding market rents going at 900-950 or so for nicer units. 

Its asking price is now the same as an identical unit in the same building that rented in less than a week a few months ago.   

One of them managed to pull a fraud sales on me this year (another story for another day) but i still find better deals from that community compare to realtors and/or MLS.

That is mortgage fraud.

My biggest concern when buying the note is fraud and escrow. 

That lawsuit is a claim for fraud, and that’s what fraud typically is...a misunderstanding and someone being “injured” and wanting to hold the other responsible for it.

A unit identical to mine just sold for 251k.