You notify them you will be purchasing the policy for them and doing so with their security deposit money, if state law allows it. 

I'd recommend listening to this episode of BiggerPockets Money and then using the linked spreadsheet to help you decide https://www.biggerpockets.com/blog/money-572

Hi,As someone that moved from CT to SC, I will tell you property taxes here are very low, you would feel the same coming from NY. the 4% for primary and 6% for a rental, at least in Charleston County where I live, is not 50% more it is really x3 more , but still low compared to NY, so while others from SC may see it as high, you may feel it is a bargain.Not only that, being a landlord here is much easier, you actually have rights on your property, which is not really the case in NY/CT.I read your mortgage rates are in the 4's, expect to pay in the 8's right now, so unless your plan to pay cash, which, I personally am not sure I would do for an investment, many reasons for that, it is going to be very difficult to make money. if you are looking for appreciation rather than income, it may make sense.Hope this viewpoint from someone that moved a few years ago from similar place is helpful. 

Aren't they losing money?

The owner lived in Utah and was making too much money as an orthodontist to worry about his run down property.

A few other methods cost some money but is usually just throwing away small amounts at a time. 

I would, If in this position, take the equity in the form of a HELOC and purchase a cash flowing asset that would not only pay for itself but pay for the cost of the money while putting cash into my bank account each month. 

We value the opportunity to work with clients and partners in the real estate community.To address @David Ramirez' suggestion, if any title issues are found, the earnest money is fully refundable.

They'll want all the money spent on the main house, lenders kind of ignore ADUs it's weird. 

As for being a hard money lender.