Your thermostats likely are 240VAC controllers.I don't have these in my low end LTR houses.I'd rip all these out and put in a modern and proper HVAC system.If your not too far north I'd put in a Heat pump system.

Additionally, they stated the home has homestead exemption, so it is likely an error on the bank's end.

These transactions are overly complex and typically never end well because the exit is not thought out and if someone wants out etc. what do you do.If I were to do one of these I would buy it in a LLC so its easier for one party to exit, especially since financing is involved. 

I think his room is noI have no idea what his other unit is getting on the third floor, I've never seen it.

Rule No. 2: Never forget rule No. 1."

I hope it all works out, and let us know what you end up doing 😃

our first exit strategy was to sell own a wrap around mortgage creating a second note and financing our desired equity position but to find the end buyer was a challenge so we decided to rent it out after 3 months of vacancy Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Quote from @John Napier: If the intent was to cut off wholesalers from doing more than two deals a year, I do not think this accomplishes that end.

I've never heard of it but I'm interested.

NAR doesn't set commissions and never has.