Which NJ regulation says he cannot do this ? 

I would check your states laws and regulations first. 

Individual states and counties have their own unique rules and regulations, with some requiring a 3-day eviction notice to tenants and some requiring a 30-day notice.

That is the only big regulation that I've heard of that could impact your project, but it doesn't sound like you are pursuing a Junior ADU.

Also, read, study and memorize your state's L/T regulations.

In making this determination, the enforcement agency shall consult with the entity responsible for enforcement of building standards and other regulations of the State Fire Marshal pursuant to Section 13146.You should strive for the legal duplex and have the ADU as the backup.  

Know the federal, state, county and city laws, rules and regulations. 

Are you aware of any regulations about having to keep the money in an escrow account or anything like that?

Hi, I’m trying to make sure I’m understanding the “3 in 12 Exclusion” regulation pertaining to seller-financed real estate contracts in New Mexico.

I know they made some changes in late 2019 and are about to pass some new regulations of the platforms themselves.