In order to get the VA loan, I will still need the income side of the debt to income ratio.

As for over-leveraging, so long as you retain around 30%+ equity in properties whose rent more than covers all expenses (including up to 70% LTV), would you really (need to) worry about that level of debt?

I want to understand the legal bound of what a quit claim deed does.

My friend may need to call a lawyer since it appears that criminal charges were filed against the previous property owner the day after the property changed hands and the solicitor is unwilling to answer any questions about said charges as my friend is not the named defendant yet was the legal owner at the time. 

The loan balance plus legal fees, penalties, & interest are typically added to the loan. 

Actually, I ran the report again with 20% down and got a negative cash flow and CoC because I have to service the debt.

Some will be legal by current zoning/ Some will be legal by virtue of being grandfathered and some simply not legal at all.

Is he legally the new owner of the home?

Using only these assets and liabilities, John's net worth has increased from $125K (SFH1, no debt, no savings) to $150K (SFH1 + SFR2 + savings - LOAN). 

@Daria B.I am somewhat confused like @Dmitriy Fomichenko however with your further explanation I see the following:Option 2 -your Ira  purchased 50% of the property and there is no debt.