Everything I've read and/or researched points me away from this conversion, but I do not think I can legally make it an additional bedroom due to the size and set up. 

Now the classes teach the legal stuff and put you on a baseline but they don't teach you how to actually sell or farm markets so I would study that stuff. 

This means that the buyer has no equity in the home until he takes legal title.

Don't take legal advice from a forum.

Honorably, admirably is the correct response of course.Our slogan contains three “honorable” synonyms “…Legally, Morally, Ethically.”™ So, addressing our minds from this premise, we may conquer challenges in ways unavailable from a negative space.Negotiating from a position of unfair advantage doesn’t permit negative aspects.

My question is: Are there any legal issues to consider in cold calling/reaching out to owners of visibly distressed or vacant properties?

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You can not terminate a lease without legal justification.

@Scott Shope  Fannie Mae do not have any lower loan  amount restrictions there are so many banks who can refinance on lower loan amount.You can get long term amortization on conventional loan.

We are also restrictive and require 2 night minimums and 3 night minimums on weekends during the high season as we will 100% book weekends and want the longer stays.