The good thing about househacking a legal multifamily unit is that lender allows you to use the vacated units of 75% market rent as an income to offset the potential current mortgage.

Quote from @Corey Gelineau: The inspection contingency is used to legally back out of a contract due to the property being in an unacceptable condition upon inspecting the property.

From what I'm reading here, and we immediately sought legal counsel on this, they're totally free to move out anytime they want.

An LLC does not provide much legal protection, it acts as a legal firewall to separate assets.

A non conforming unit is technically legal but it doesn’t meet current zoning (but possibly was once a legally functioning unit as a residence).

Regarding number one, while it may or may not be legally necessary (not sure), I think it's a good idea to have a separate account for each entity.

Generally there is consensus that DSCR Lenders can only offer a 1% prepayment penalty for up to 3 years in MI, but some lenders have recently reportedly been flaunting this rule - I would just tread carefully here in this area, generally not advisable to get potentially tangled up in a flawed legal doc with a non-sophisticated or fly by night lender

It also affirmatively states the tenant has not prepaid any rent except the current month, including any type of "last month's rent in advance." 

It makes ADUs under 900 sq. ft. in SF zones legal BY RIGHT, statewide, starting in February.

The next question is whether the property has the zoning to legally operate as a 2 or 3 unit building.