If not, what modifications do we need to make to make it a 3rd bedroom?

After a few modifications, it morphed into the current project and has turned into a great opportunity.

As long as the mortgage is not a modification loan you should be able to make payments. 

None of my local title companies will insure a particular title issue (BOA foreclosure and loan modification done improperly).

You can use your current lease, however, modifications like utilities and whats included with the move in of the tenant.. 

House never had cert of occupancy and needs some accessibility modification for approval as well as undoing some fenestration for inspection, but is generally in sound condition.

My plan is flexible and is open for modifications as I progress with my life.

Based on the current rents and expenses, which I expect will change after some modification, the property will cash flow about $525 a month, with a NOI of $21,560, and a cash on cash of 10.8%.

Almost a month later, they sent us a denial letter in the mail stating that our interest rate was too low to qualify for a Loan Modification and wouldnt end up lowering our payments, and also stating that a repayment plan was off the table because we didnt have enough surplus to make the higher payments.

BRRR is all about buying below market and either fixing up the property or creating more value with modifications you make to the asset.