You can take your car to a certified mechanic and pay for their expertise and guarantee that your car will be fixed properly.

A debt is not secured by your home if it is secured solely because of a lien on your general assets or if it is a security interest that attaches to the property without your consent (such as a mechanic's lien or judgment lien).

Even a sump pump can fail; they are electro-mechanical devices, so mechanical failure of electricity outage can both bring about failures there.

Carpet and paint only, some mechanicals replaced, gut jobs where the copper and electrical needs to be put in etc.??

Can pull permits, not including mechanical (unless he's licensed in that field). 2.

The problem comes when a rehab just is cosmetic while leaving all the mechanicals/structural deficient.

You can get a solid new construction property for under 200k and you can get a great, lightly cosmetically renovated, with newer major mechanicals, cash flowing rental for 80k.

If the intent of the rule is to prevent transactions like this it seems like it would be easy to structure around either using some mechanism like this or by using something other than an LLC?  

I've been looking up 'Liens' and I'm not sure if my situation would qualify for a 'Mechanical Lien' or not, or if there's some other step I can take to secure my $40k.  

You haven't mentioned big items such as mechanicals (furnace, water heater, A/C), roof, electrical, plumbing, siding, structural, and other potential big ticket items.