@Mark Thiel This is not legal advice but I think most LLCs are overrated unless you are required to have them for lending like with many DSCR loans.

@Ahmed MoustafaThe general Fannie Mae guidelines you mentioned are for non-renovation loans. 

Conventional loans underwritten by debt to income/DTI will require 12 months due to Fannie Mae / Freddie Mac guidelines.

Take control of the situation yourself, and if you want her out, then give proper legal notice.  

I am not a lawyer and this is not legal advice.

And when you do a lease for MTR, you'll need to put that in the lease in case they stay through high season, spelling out exact prices for each calendar month, so there is no confusion and it is legally enforceable. 

.: I would reply to his threat of going legal with the final punchlist you're requiring to release final payment.

Hey,If "building class designation" is the same as zoning, then this seems like it can definitely be appraised as a two family, with both the legal and actual designation as a two family.Depending where in NYC, that may not help your valuation, as primary residences sometimes sell for more than investment properties, so check that out before challenging the appraisal and definitely before paying for another one.Double check all this with your lender/broker as well.Best of luck!

I know I will need to get some legal advice, but I am really looking for some input on where I should even start. 

You definitely want a legal agreement that's forecloseable, getting as much front money as possible so that you're not just in a lurch with nothing if/when they default, and you should get better interest terms for "being the bank" AND I would qualify the buyer just the same as if they had to go to a bank, because you want to know who your partner is in this deal.