This would show on your credit bureau as a non R1 or non I1. It depends on how it is presented to a lender. Lender looks at overall strength of the application and not on one incidence.

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If i were to purchase a home with a cosigner who later became a tenant, their name was removed from the deed (quitclaim) but the mortgage was never refinanced. over the 2 year time frame their credit score dropped dramatically (phones, credit cards,etc.). now i want to move (my family has gotten bigger) but there is no way to get the loan refinanced (her credit score is too low) and she has nowhere to go so my home is kind of crowded. she says she will take over the loan (we plan to have legal doc. drawn up saying so) but the lender wants to consider this as my debt. i can't live anywhere rent free so of course she has not always covered the entire mortgage payment, but she has made all the payments electronically. we share a bank acct also that we make the payments out of. is there any way to prove that she is making the payments (without having cancelled checks) and be able to qualify for a second fha loan. i meet the income, credit, everything, but this mortgage is whats holding me back.

No, that will not work. You want to prove you are committing fraud in order to commit more fraud. You need to have one of the loans a conventional one. Legally it should be this one since it now income property.