There's new regulation that prevents PMI from being removed after 5 years (if you have a FHA loan under 20% down payment).  

Germain Depository Institutions Regulation Act that might be applicable to what you are doing: http://articles.chicagotribune.com/1998-12-05/news...I would like a clearer idea of what you're asking however, so you and a partner will form a partnership LLC, and take out a loan from a bank?

I have joined bigger pockets in the hopes of learning more about the laws and regulations, tools of the trade, and general information about investing in the California real estate market.

I feel like there must be some laws or zoning regulations that would prevent the seller from doing this.Who is really responsible here and what is the process to clear up this situation? 

Also, please pm me if you know of an insurance company that uses simple procedures for adding properties to the policy or for changing the status from occupied to unoccupied and back when necessary.

Secondly, the laws and restrictions on subdividing property will be as per local laws and procedures.  

Your state actually just sued the SEC over Regulation A+ recently and wants to protect you from investing your own money.  

In addition, the second property has a detached third unit, and due to an obscure regulation, Fannie Mae won't lend on it. 

A mortgage is a bond that is mostly exempt from the SEC regulations because they are regulated as special instruments under other federal and state finance regulations.

One who represents themselves in court has a fool for a client.When newbies try to out fox long standing rules, regulations and laws, business structure requirements and prudent practices, they will screw up.