the numbers don't add up.If his principle balance is $31,000, he shouldn't need to pay $51,000 to get out of the loan.

It sounds like the terms of your option is basically allowing you to pay down the price at zero interest for3 years which means it is all going to principle.

I and the seller agree - if it was agreed to - then it is fairly simple on a moral/ethical ground - that the buyer deserves the warranty.

Are you able to refi because the property has increased in value, or were you able to make principle payments from renting the other half of the duplex?

Your monthly mtg payment includes principle and interest, the principle reducing your loan balance.  

NAR/CAR ethics stipulate 'Seller is Agent' disclosure in writing on the MLS etc at time of listing because even if Seller is not the Listing Agent, licensed seller/owner may expect and/or receive compensation (ie, gift, referral fee, portion of listing agent's compensation, etc).Thus licensed seller is inherently not strictly limited to being a principal in the transaction, so would have had to disclose seller is licensed agent. 

These are professionals with additional training and a stricter code of ethics.

These are professionals with additional training and a stricter code of ethics.

Appreciation, depreciation, principle paydown? 

My original plan was to put a HELOC on each unit and pull 80% of the value out to recoup my cash, however now I’m considering doing a cashout refi in six months for the same amount or more.Using the HELOC, my original plan was to take a 50k line on each unit and use all of my cash flow (no money set aside for reserves/profit) to not only pay the interest but also the principle down.