The legal consideration exchanged is their rent paid to you on the schedule outlined by the new lease and the home you just agreed to provide them.  

Regarding deeding back to the LLC- You could trigger a due on sale clause in your loan documents if the property is deeded back to the LLC.  

I guess that's not something I would need to decide immediately, but it's something to keep in consideration.

Another thing the IRS is looking at more  are those who are taking distributions when they did not meeting a triggering event.

So I'm just trying to figure out the best way to approach this so as to be considerate to the tenant (who has lived there for 12 years), as well as to not screw myself over with not being able to move in as part of the owner occupied FHA guidelines.The tenants lease expires last may and was never renewed, which defaults to a month to month.

A recent offer, mentioned in the first post, is what has triggered him offering it to me. 

Not sure if you pulled the trigger, I wish I seen this...322k is pretty high

There may be a way to transfer the title with no consideration so no 3% recording fee.

 I found I deal that could be very profitable for me, but it's so hard to pull the trigger on something that isn't pretty,  only depreciates, and might be more work than I expect.  

Making a reasonable accomodation for one tenant could trigger allergies for another tenant, and then you have a mess on your hands.