Duplex with a non permitted ADU / cottage in CA - worth it?

[Sean Oh]

Hey BP community, 

I'm considering purchasing a duplex in the Oakland, CA area. The duplex is a fairly nice 3b/3ba within walk/bike distance to Bay Area Rapid Transit (BART) with tenants on a month to month lease at pretty much market rate (also they have pets if that means anything at all re: stability). 

There is a coverted shed ADU in the back that definitely won't pass muster and if an inspector had to come for any reason, it would have to be taken down. It is very nice on the inside and the plan would be that I live in it while collecting rent from the two units in the duplex.

Questions / Notes:

1. - Will I have any issues getting and closing with a conventional loan here? I would be owner occupying, but obviously the ADU is not technically a "liveable" space. The selling realtor mentioned that they had to remove the "kitchen" cabinets to convince the lender that it was a non conforming storage unit.
2. - What sort of risk am I taking by taking on this property? Risk of having to tear it down, risk of getting loan due(?), ....? 
   - If I want to make any improvements / renovations to the property and have to get permits, could those trigger inspections then a tear down? 

Any input/advice would be super appreciated!

Best,
Sean