Sell rehab subject to/lease option/seller finance

[William Price]

I have a multi-unit that I'm selling that needs extensive rehab.  I'm selling for the cost of the mortgage; however, the buyer does not have the cash to purchase or the ability to get a loan until the property is rehabbed.

The seller wants me to do owner financing, but I would have to sell, pay off the mortgage, and then hold a note while they do the rehab and then refinance.  I don't want to do this b/cs I would have to come to closing using other funds to pay off this mortgage.

I proposed a lease option and they agreed, however, they want a clause that says if any damage happens during the rehab, I will reimburse them for all damages.  This is a bad part of town and we are constantly dealing with squatters trashing the place so I don't think that's a good option. 

Another hurdle is the insurance and who needs to carry the policy during the rehab (I'm assuming it's me (seller) under a lease option).  If I do owner finance, I think it would probably be the buyer who carries the insurance with me named as an additional insured, but I don't know.

The final option I'm aware of is a subject to deal where title would transfer and they would take over my payments, but I'm concerned that if they run into any problems down the road (15 years left on the mortgage), I'm on the hook.  Can you do a subject to for a 1 year period while they do the rehab so they would have title, could get proper insurance, and would still pay my payments.  What is my recourse if they are not able to obtain financing after it is rehabbed or stop making payments on my mortgage.

Thanks for any feedback or guidance!