Once I worked with Laughlin this year, they were able to set up the necessary paper work and all the resolutions that I needed to comply with the state requirements.

Definitely make sure to comply with CA and local law.

The same banks also have in house financing, which doesn't need to comply with certain rules. 

You'll have to comply with your state's regulations.  

I explained to him that I would need it back after 3 months and he complied.  

If they are motivated they should be happy to comply. 

If they are, then the buyer must be cautious to comply or risk much more than just their investment.This, of course, applies to CA, not WA state.

I figured the agent did the BPO at some point and was very wrong and is covering now to the potential buyers that push back.The other option is as you say, the FDIC created some generic policy to mitigate a distressed banks losses, and the bank is now trying to comply.

Nothing bad will come out, i have seen several times this happen, title will clean it showing proof, years ago a guy bought from HUD in LA a corner lot one fence everyone inbolved thought it was fine, he went to pull permits and found out he only whas owner of have the lot and on top he had to cut 5 feet from that side to comply with set backs he tried sueing but got nowhere with HUD.Strange that loan people did not notice (was it a HML).

Being this a cash transaction, this needs to be on the Closing Disclosure (former HUD-1), so your agent will comply all guidelines, and this amount can be applied towards the money you need to bring to the table, in Texas.