Can someone tell me what I'm doing wrong.

Nothing wrong with rent to family or living in your income property(house hacking) especially if you're living for free. 

There are plenty of other issues like hiring the wrong contractor, zoning/permit issues, helping buyers qualify, poor design choices, etc., but the bulk fall somewhere within those three buckets. 

All I'm saying is that based on speaking with those attorneys, these types of JV deals are best done with friends/family who aren't likely to sue you if something goes wrong and you lose money in the deal.

@Steve Vaughan is wrong.

Zillow is WRONG, get with a local agent (I can help if you like)3.

To my knowledge it should be federal 4 and state 1 or am I wrong?

That's because newbie Investors have been lead to believe that a bank or mortgage company is the ONLY way you acquire property, Wrong!

@Rich Baer please correct me if I'm wrong!

The most disappointing part about this is I have no idea what went wrong here it was a good deal. it was a all cash deal we are getting the top rent for the area, its just strange and I don't understand it but it is what it is.