End of conversation.If you feel compelled to take an app from him, those deficiencies should be noted in his application.  

The only advantage to the buyer is that there can be no deficient judgement as they have not signed a promise to pay. 

Or do they have some way they offset their calculations when determining value for a deficiency in one of these areas? 

sure you can sub too the property  then the bank will foreclose the seller out and you with them.. like they are talking about and if its Texas probably go for a deficiancy judgement against your seller.. probably not in the sellers best interest.. 

Many people on BP suffer from ED--educational deficiency.

Should the property go to auction at a foreclosure sale, it's a fair bet there will be a deficiency unless the lender themselves win the auction by bidding the balance owing.

Has anyone done a drive by to check out obvious deficiencies?

You guys are deficient in certain skills and need somebody to fill the void?

Frankly, I might consider finding a neutral third party to do an independent audit to look for deficiencies in legal or accounting.  

When you compile the list of deficiencies, back to the negotiating table.