Their algo isn't sophisticated enough, yet, to accommodate natural disasters and inventory shortages so it's most likely responding to the incredible demand (and unaware of the legal implications).

Namely, that if a tenant (in this case accompanied by a whole family) ends up stop paying rent and I would be on the hook for both covering the mortgage and dealing with open ended legal costs and time.

They legally have to have this document filled out if they pay you more than a certain amount over the period of 12 months.

My credit should be the highest allowable also and I shouldn't have problems with approval.

In any contract you don't typically need a clause saying what you CAN do, its assumed you can do anything legally allowed as an owner including sell.

If you need financial help, ask under the "Finance, Tax, and Legal" forum.

Quote from @Jeffrey Hill: There are a couple of challenges with financing the difference. 1) The current servicer has to approve it. 2) Finding a lender to do a 2nd mortgage at 100% CLTV is almost impossible.

How hard or easy is to get zoning approval for a new assisted living or senior housing project? 

Honestly, I would not sign any lease until you positively close and legally own the property.

I think there is value in ADU as long as it is legally done and can be legally rented.On the sale side a benefit can always be an in law suite.