@James JonesIn order to get an answer, you need to share some information.1) Was this home your primary residence?

My questions is, since he is the current resident and not a new tenant moving in do I still need to go through the CO process?

Once of the assumptions we make about lease option buyers is that they probably can't qualify for a bank loan.  

I currently reside in Richmond and work in San Francisco, so I was thinking it should be about 45 minutes (give or take 10 minutes) outside the city.

You definitely need someone qualified, does not have to be a CPA, could be an Enrolled Agent or an attorney.

Also so often many focus on increasing income but the inverse of decreasing expenses is equal if not more powerful because it often doesn't have more cost to your residents. 

Unfortunately the property was in a flood zone which added about $100 a month unexpectedly to the cost of ownership for the first buyer who failed to qualify.  

Before i invested in my first property i was under the belief  as soon as i own a property i would  qualify for all types of loans also i thought investors would just toss money my way.

There are various reasons the project may not qualify for financing:  owner occupancy percentage, one individual owns more than 10% of the units, the community is involved in some sort of litigation (usually construction defect), or the HOA finances are bad (underfunded reserves).  

Not to mention you also have much more flexibility with the tax code.Other options would be to buy better cash-flowing rentals (tough in this market), qualify your spouse as a real estate professional, or sell the property.