However, before you do so you should ensure that your revenue from rental income covers ALL your property expenses in the townhome, including mortgage, taxes, insurance, maintenance/repairs, vacancy, property management, etc...

They already lost some major players due to the state capping rates https://www.foxbusiness.com/lifestyle/california-insurance-c... will all insurance companies stop coverage, raise rates or reduce what they cover?

Any other ideas on how to ensure our funds are protected? 

Sometimes, properties owned by non-profits have deed restrictions, zoning conditions, or agreements tied to their use.Tax Considerations: Non-profits often hold tax-exempt status, so you’ll need to ensure that taxes are assessed correctly once ownership transfers to you.Potential Public or Internal Scrutiny: If the transaction appears to undervalue the property or is perceived as exploiting a non-profit’s resources, it could lead to reputational risks for you or the organization.

I would restate that the lease will remain in place until such time that a new tenant is selected and moves into the property.This approach will ensure your cash flow while acknowledging that 'stuff happens.' 

Start by getting pre-approved for a loan, ensuring your credit score, debt-to-income ratio, and finances meet lender requirements.

The most important thing is to ensure your loan is covered in the event of a loss.  

Whether it's considered an arm's length transaction is debatable, but it's not illegal.Move forward with the sale and ensure full transparency with all involved parties, including your CPA.

He is unlikely to fight back in court when everyone in the house is against him.When he is served notice, ensure everyone is in the home to witness it and present a unified front.

This ensures that any settlement check will be issued to you AND the tenant - and that you can interact with the insurance provider.