They are trying to make their problem - your problem.Just keep shaking your head and saying noncommittal things like, "Wow, that really is a shame."  

And part of me can't shake the feeling that if this house really was that good of a deal, some other investor in the area (it's a metro area of about 250,000 people) would have snatched it up by now.  

Then you don't have to pay him anything- you shake hands and walk away.

He did shake his head a bit wondering how the PVC runs all met 'code slope' & made sure all dry venting was to code.

I do a lot of research on MLS like Zillow but I just can’t shake the feeling that I have to go and be there, at least for a start

However, I cant seem to shake a bad feeling in the back of my mind about them and processing the application didn't help.

I wouldn't look down on you in a conversation about your livelihood without giving you a fair shake.

That would shake me certainly.Draft that nice letter, honor your suggested option of first option if you want to sell, (integrity matters whether in writing or not), and if you decide to move back in to your home prepare yourself for a few dinged walls and stained floors!  

Wow, you do know that by saying this you're trying to shake up a while world of trouble, even for yourself since you yourself are a landlord.

I could go on and on about each item she listed, because the entire thing sounds insane to me.Disclaimer: I'm not licensed in CA, so I don't know what the landlord-tenant laws are there, nor do I have any clue how this will shake out in that legal environment, but I can't imagine you're liable for more than the remediation and a hotel bill during the time they're displaced.