They want to make sure there are no underground tanks, or other environmental hazards. 

Even the lowest priced house still needs to offer any future resident safety and this area can lead to various very undesirable legal liabilities for the owner/seller.

Ensure you have enough to buy an investment property and also enough for a safety net in case something goes wrong shortly after purchase.

I just checked, I have a copy of "Evidence of home insurance" seems like regular home insurance(not hazard), on 2nd page it has mentioned my name as Mortgagee/Loss Payee.also, borrower is not picking my phone, so just wondering to who should I contact, insurance company?

In this case, your borrower would have purchased a hazard insurance policy naming you as a Mortgagee.

You'll need to change the use from residential to hotel, which will require a lengthy process that includes physical upgrades and changes to the building.Basically the City wants the property to conform to safety standards for that particular commercial use.

@Alyssa SteinruckYou may have some contractors come and see how long it would take to repair the damages, or how long to repair the safety issues and get a better idea of what it will take to fix.If its something they can do in a week or two, you may just offer to put them up in a hotel until the major safety issues are addressed.  

Please make sure you are safe (as can be - alert and aware) and not taking away energy to maintain your safety!

And after I went to the building and safety office twice and some plan alterations, I got the building permit. 

It's a hazard and most people don't want the headaches of a pool.