Can someone explain to me why this is a bad deals?

If they are looking for a cash only deal then there are a few ways to work around that and I'll be more than happy to explain.

I would not seek a private lender first, but would talk to a bank and explain your strategy.

Regarding #2 (i.e. legal fees) they told us that usually, attorney fees are $2,000-$5,000, but this time they can do it for about $2,000 but don't know exactly about additional fees that will be added by their legal counsel" :)Wow, what a conversation.So, I love an idea of banking with a local bank, having a relationship, but everything I explained above sounded to me very unprofessional.

See this as a great opportunity you can talk to your mortgage company and explain your situation, I am pretty sure they would rather have you rent out the home and pay your mortgage regularly than foreclosing because you could not pay. 

Think how you will explain this to a judge in the event that you have to evict.

They also have a packet that explains the requirements for converting legal use from two to three, which I believe includes adding a sprinkler system.

Oren,What you have said above is correct as to the way it has been explained to me, by 3 separate CPAs/Attorneys that I have various business with.

That can be an issue sometimes, especially if the wholesaler didn't explain everything to the sellers. 

If you send me a message I can send you his contact information.He would also be able to really explain the relationship that you're talking about.Talk soon,William Lees Jr