Consider a Lease Addendum: If the tenant is willing to comply but you want to formalize the arrangement, consider adding an addendum to the lease that outlines guest policies and consequences for violations.

We may have an out lined up. 

This California State Legislative code outlines which encumberances will survive a tax auction (see below in italics), and I want to make sure that a Deed of Trust with Assignment of Rents does not fit into any of these categories.

In Texas, We have to send the tenants a notice of deposit transfer outlining what the deposit is and who it is going to.

Hi @Benjamin HuiIf they are calling you about issues & nothing is outlined in the lease then you need to handle it as the landlord and property owner.

The parties acknowledge and agree that neither party shall have any liability or obligation to the other with respect to the matters set forth herein unless and until a definitive PSA has been executed and delivered by both parties.ConfidentialityThe parties agree that all information exchanged pursuant to this LOI and the negotiation of the PSA shall be kept strictly confidential and shall not be disclosed to any third party, except as may be required by law or as necessary to obtain third-party consents and approvals.We trust that the terms outlined in this LOI are acceptable and look forward to your favorable response.

What @Brittany Minocchi outlined is correct.

Hey @Dave Foster, as someone who plans on selling on a 1031 exchange in the next 12 months, I have a question:  in the scenario for the buyer you outlined above, it doesn't seem particularly beneficial to the seller, because if they keep the note outside the exchange they're paying taxes on a boot that they wouldn't have if they got a different buyer who could meet their price, or they're having to replace with outside cash the note inside the exchange.If I were the seller (and like I said, I will be in the next 12 months) I wouldn't like either of those outcomes. 

of the dividends and interest being used to pay future premiumsAm I outlining this correctly? 

The solution I outlined above is a cheaper, faster and more likely to result in achieving the outcome sought by OP.