Actually I almost spit my coffee out this morning as there is a guru in the "pick what I am selling today space" who claims to make close to six figures a year in passive income and was saying they made their money from investing in notes - and I saw them make a post today that "this is the reason I no longer do notes" in another thread.

You will likely run into some agents that will claim it is illegal but they're just likely uneducated about the space and have a bad stigma about wholesalers.  

They claim to have done routine inspections, but I was never informed of this water intrusion issue.

For restaurants, rent should ideally be under 10% of gross sales, so I believe $5,500 a month is fair.The seller doesn't have a rent roll or strong financials, and his tax returns are 50% lower than his claims.

(If you live in the property so that you can claim the Homestead Exemption, your property appraisal can "only" go up a max of 10% per year.

Quote from @Bill J Fay: As long as you qualify for the loan independently of the funds used as the GAP funding, most lenders shouldn't have an issue.Some don’t but some do have terms in their notes that specify the property cannot be encumbered beyond their claim.  

Can anyone recommend me a great insurance company that's also headache free when it comes to filing claims?

OR, they are hoping that you (or they) can file an Insurance Claim to help get that new roof! 

The lawsuit includes claims for breach of contract, specific performance, and trespass to try title, and the case is registered in public records.Additionally, the lender has initiated foreclosure proceedings on the property due to Seller Z's default on payments.Is there any action I should take as Buyer A?

This guy, Leland von Syring of Charter Financial claims to have been around since 1997 with his company in the note business, and to me it doesn't seem to be a scam or anything.