Thanks to M. kanté for pointing out further papers that studied this framework. Reading later papers that deal with vertex partioning problem framework (mostly under the name LS-VSP problems) resolved my confusion on "cofinite" condition.
Short answer: Distance-2 coloring fits in their framework. Every $\exists D_q$-problem in their framework admit FPT algorithm if each entry of the degree constraint matrix $D_q$ is either finite or cofinite.
Suppose $D_q$ is a $q\times q$ matrix with entries from $\mathbb{Z}^+$ (i.e., positive integers). A $\exists D_q$-problem in the vertex partitioning problem (also called LS-VSP problem) framework of Telle and Proskurowski takes a graph $G$ as input and asks whether the vertex set of $G$ can be partitioned into a $q$ sets $V_1,V_2,\dots,V_q$ such that for every pair $i,j$ with $i\neq j$, every vertex in $V_i$ has exactly $D_q(i,j)$ neighbors in $V_j$ (here, $D_q(i,j)$ denotes the $(i,j)^{th}$ entry of $D_q$).
In the first paper that introduced the framework, Telle and Proskurowski proved that every $\exists D_q$-problem admit an FPT algorithm with parameter treewidth provided every entry in $D_q$ is either finite or cofinite (importantly, this algorithm is not galactic unlike algorithms obtained from the MSO framework). Later, it was proved that such problems admit an FPT algorithm for various parameters including cliquewidth [1,2,3].
Another closely related but distinct framework is due to Gerber and Kobler[4] (problems in this framework also admit FPT algorithm with parameter cliquewidth). A $\exists D_q$-problem fits in both frameworks if every entry in $D_q$ is a set of consecutive integers.
In general, there are good algorithmic techniques to produce efficient FPT algorithms for $\exists D_q$-problem in various classes if $q$ as well as $\max\{|A| : A\text{ is a finite entry in }D_q\}$ and $\max\{|\mathbb{Z}^+\setminus B| : B\text{ is a cofinite entry in }D_q\}$ are small.
Most of these papers also provide FPT algorithms (and/or poly. time algorithm in restricted classes) for optimization versions of $\exists D_q$-problems (i.e., minimize/maximize $q$, the number of parts in the partitions).
References
[1] Oum, Sang-il; Sæther, Sigve Hortemo; Vatshelle, Martin, Faster algorithms for vertex partitioning problems parameterized by clique-width, Theor. Comput. Sci. 535, 16-24 (2014). ZBL1419.05204.
[2] Bui-Xuan, Binh-Minh; Telle, Jan Arne; Vatshelle, Martin, Fast dynamic programming for locally checkable vertex subset and vertex partitioning problems, Theor. Comput. Sci. 511, 66-76 (2013). ZBL1408.68111.
[3] Belmonte, Rémy; Vatshelle, Martin, Graph classes with structured neighborhoods and algorithmic applications, Theor. Comput. Sci. 511, 54-65 (2013). ZBL1408.68109.
[4] Gerber, Michael U.; Kobler, Daniel, Algorithms for vertex-partitioning problems on graphs with fixed clique-width., Theor. Comput. Sci. 299, No. 1-3, 719-734 (2003). ZBL1042.68092.
[5] Telle, J. A. (1994). Vertex partitioning problems: characterization, complexity and algorithms on partial k-trees, Doctoral thesis(1994), University of Oregon.