Is there a type of mortgage insurance or bond you can get for owner financing that secures his position? 

Property owners get an annual update on their SEV & Taxable Values with their city property tax bill, typically sent in December.So now, the city assessor tracks the SEV, but homeowners are taxed based upon the capped Taxable Value.

Quote from @Matthew Paul: If the man wanted to he could sell the house and keep the profit  Are you willing to insure the OP if she buys the house?

Secondly, he again did not fully disclose everything and was pushing for the signature on the final closing documents, in them he has 2 seperate title agencies involved as well as a third party construction company listed as the policy holder for the insurance for the home, and the figures for sale are different from those on the sale agreement document that I did sign, with clauses included that state if the title is not free and clear that the buyer has the right to sue me for insurance purposes and to cover the silent second mortgage that I was only informed of because the title agency called me to say something was up after arranging the notary to come to me to sign the final documents (at which point I said no and had a copy of the closing documents emailed to me), and again the so called real estate agent negotiating the transaction is listed as the buyer (under the guise of being part of ushomebuyers.com, same as the agreement to sell). 

If your concern is liability, what I did was get an umbrella insurance policy on the properties I house hacked under my name.

Just get extra liability insurance on them.

This is a very common agreement, in your space your problem and they also should have insurance that if its extensive insurance would cover it. 

Sub to needs special “handling” because if the selling party is a homeowner rather than investor they need to be aware of the following when they sell sub to1.

As I understand it 100% deduction on expenses that are soley related to the business or the rented unit, 50% deduction on expenses that relate to the general property as a whole ( mortgage interest, insurance premiums, common area repair expenses).

In the past with owning duplexes in Milwaukee, One rent paid for the mortgage and the other paid the property taxes and insurance.