Would never happen, they must perform.Thanks for hearing me out :)In my experience, a mortgagee's title policy runs two or three pages, a Schedule A and B possibly a C, the Terms and Conditions and Exclusions from Coverage are printed on the jacket cover and perhaps another page or two for endorsements. 

The ALTA 9.2 is an endorsement to be issued to a policy which provides additional affirmative coverages to a standard title policy. 

Caroline Gerardo  NMLS 324982 This is not a endorsement of Attorney Opinion Letters but have you used them?

There is this new bill/legislation from WH that WH is trying to endorse more ADU building.

This is not an endorsement.

You will want a Rehab policy that includes a builder's risk endorsement during rehab.

The insurance company may be able to endorse the policy to ensure continued coverage.Forming the LLC and bank accounts (From your post, I think you did this one): Establish an LLC.

They are essentially endorsed at the bottom of the city of San Jose website - https://www.sanjoseca.gov/business/development-services-permit-center/accessory-dwelling-units-adus/adu-permit-plan-review-process/adu-single-family-master-plan-programwww.abodu.comwww.prefabadu.comwww.actonadu.comFrom a cost prospective, the prefab ADUs may be the way to go but I share your concerns about issues with the structures in 5-10 years. 

When you change the named insured on the policy to the LLC the Insurance company will issue and endorsement to the policy. 

Account Closed, I'm very experienced with 203k and absolutely endorse the program for primary residence purchasers looking to HouseHack with low down payment (3.5% on the total budget - Purchase Price + Hard Costs/Rehab) on a 2-4unit property.