The HUD is a legal document...but OK, you can claim it's bunk if you wish as I know it makes you feel comfortable.

I am looking for any input on how to structure this deal and make both sides feel comfortable with the amounts.

Inspectors may note it during that part of the process but I've never had a buyer ask me to have one done, or ask if they could have one done; people are either comfortable with it based on the inspection report or they're not and they pull the plug from there.

Now I guess the OP could make the argument he stepped into the shoes of the 2nd DOT holder but I'm not sure that works when you obtain title via a Trustee's Deed since there are no warranties. 

Just because you add an ADU doesn’t mean it’s going to add enough value to recapture that $300K.If it sounds slightly out of your comfort zone a simple conversation can be extremely impactful Thats where breaking down the payment management tools, local experts on small repairs, credit and background checks for renters, all comes into play.

☺️)...you might talk with the realtor and it goes on the MLS and it sells to someone else....or it might sit on the MLS for a while and you eventually get it.My point is, as a realtor and investor myself, put yourself in the other person's shoes...they don't want to feel "pushed" or like someone is trying to take advantage of them. 

See what you're comfortable with and then you just gotta commit to narrowing yourself to 1 or 2 markets or you'll be in decision paralysis forever!

It sounds like the appeal here isn't the deal but the ease/comfort of finding/making the deal.

If you want your space to feel inviting and comfortable to live in, you have to trigger certain emotions in people. 

You are comfortable with the risk associated with leveraged investments.