If I get a conventional loan on the property as is, I would not be able to turn the property into 2 parcels because at that point, I would be in default of the loan. 

The property is a sheriff sale, with the creditor winning the case by default in court as the defendant never showed up. 

Defaults can be monetary (late payments), but they may not be monetary.

A landlord may also send a RORL to a tenant that is in non-monetary default of the lease if the landlord does not intend to take immediate action to enforce the lease, but wishes to reserve the right to take such action in the future.

Your LTV should be low enough to protect you in the event of a default.

Since it's a holding company, I am assuming you don't have an operating agreement, so the default would mean both partners need to agree to such a loan. 

They'd still have the deed on the home if you defaulted and could claim it back if necessary, so their position would be secured.If you need anymore help, feel free to connect!

A personally guarantee passes the liability to you as an individual if the LLC defaults on payment.  

It shows you mean business and technically if they default on the same issue, you can evict them (not that you may want to but you have the option).

I gave them the option to pay back as stated above, and I will stick by that agreement if they continue to pay.That being said, if they default whatsoever, I will immediately take action to evict.