Any legal issues I should be aware of in this situation? 

Selling your share at fair market value could avoid gift tax but may trigger capital gains tax for you based on the sale price and your cost basis.In California, the transfer may also trigger a property tax reassessment under Proposition 13 unless a specific exemption applies.

So even though I lost a deal and commission I won loyalty and a client for life and became very valued as an agent and very successful by getting the money that was deserved and obviously, rightfully, morally and legally due to her.  

Hi @Kenzer Hodgson to @Sarah Kensinger's point above, I'm not a fan of so many people spreading legal advice/insight on the forums, but at least it's better than Instagram/Facebook and YouTube. 

The key is understanding the nuances of the program and making sure your property aligns with their inspection standards.In Detroit specifically, Section 8 tends to work best in C and C+ neighborhoods.

If you need financial help, ask under the "Finance, Tax, and Legal" forum.

Is the basement legally considered living space?

I sold that in 92. next iteration was 2002 when I started a new lending company in Portland OR to specifically fund Turnkey buyers in the mid west doing BRRRR loans we killed that.

You can buy my book, the book from Brandon in the BP bookstore, or Every Landlord's Legal Guide by NOLO. 

In that case, you’d typically need to file a legal challenge, which could involve going to court and showing that the restriction is unnecessary or unreasonable.The best advice I can give would be to consult a real estate attorney to understand your specific situation and options.