You just have to be on top of things concerning emails because time is not on your side. 

She doesn't have a $$ she's looking for yet, but she'll let me know.I'd like to demo the house and build a 4-unit and live in one of the units, but I'm concerned it may be too ambitious for a first deal.

(we are concerned if we have fewer protections when we get sued?)

I'm concerned that when the property is assessed as a business it'd appraise lower than it'd when assessed as a residential property using comps.

The first remediation company went to assess the damage and told us an overwhelming amount of work that they will have to do in order to repair the water damage, including demo the kitchen cabinets from the walls, potentially destroying the counter top, opening up downstairs bedroom drywall, ceiling and some carpeting, and that they will not be able to put anything back due to liability concerns (the fact that they are not licensed contractors to perform such types of work).

The fact that your electrician mentioned neutral leads me to believe they saw a concern.

I’m concerned about capital gains and how this could possibly be a problem in the future.

I would follow everyone's advise here and immediately call a lawyer and then move swiftly to appease their concerns immediately.  

@Bruce Woodruff yes that is my concern, mainly potential high assessments but on the other hand, less maintenance to worry about.

As Charlie mentioned, the Insurance company will be concerned with the safety at the site.