Something else to check with your tax and legal advisors.

I have bought a few houses after reading the foreclosure notices in the legal section of the newspaper but mostly I find opportunities by just talking to people.

Legally you can claim estoppel and latches as a defense as they let it go on for so many years and you relied on it when buying. 

Please consult a real estate attorney for legal advice before you act on any comments in BP forums.

Buy a property that perhaps has a legal suite or a duplex.

I haven't ran into an issue like this before especially if you followed all of the guidelines for it to be a legal bedroom such as bedroom size, entrance size, egress, closet, etc.

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.

I'm also relieved that I hired a local real estate attorney to help create a county-specific, legal MTR agreement for our house-hacking situation.

I suspect a legal, permitted garage conversion ADU will cost ~6 times your estimate if hands off and probably at least 4 times your estimate if you do the finishes yourself.  

They then did the STR model (with permits) and are able to cashflow a substantial amount.However, this only legally works while it's your primary residence.I've got other friends that used their VA loan to secure the rare plex in Alexandria.