Buyers tend to overstate the condition of the property and understate their expenses. 

Most of them - especially the small mom and pop operates - tend to overstate income (If you raise rents you'll make this" and understate expenses by conveniently forgetting to include some of them. 

Such methods are inherently inaccurate so they'll either overstate or understate the reality of the property.

One-foot overhang for eaves would be allowed.ADU Size (in sf)LOT SIZE (SF)ADU MAXIMUM SIZE (SF)3,000 - 5,4446005,445 - 9,0007009,001 - 10,00080010,001 - Up900LOT SIZE (SF)ADU MAXIMUM SIZE (SF)Up to 90001,0009,000 and greater1,200Number of Bedrooms and BathroomsTwo bedrooms allowed on lots with an area greater than 9,000 square feet, and only one bathroom.Up to two bedrooms and two bathrooms allowed for all units.Attached ADU Maximum Floor AreaMay not exceed 50% of the existing or proposed primary dwelling living area.May not exceed 50% of the existing or proposed primary dwelling living area or 800 square feet, whichever is greater.Design StandardsVisual compatibility with existing primary dwelling is required.No design standards, except new simplified standards for attached ADU units for historic buildings listed in the Historic Resources Inventory.Parking requirementsAn ADU requires 1 space unless the property qualifies for an exemption under State law—see the parking requirements.If a garage has been converted, the main dwelling parking space must be replaced, as uncovered or in front or side setback areas.

Seller's like to inflate the income on the pro forma and understate the expenses. 

I currently have an umbrella policy under State Farm. 

It's very common for small business owners to understate their expenses and overstate their income.The overstatement usually is in the form of "We don't run everything through the cash register", especially in a cash business. 

While it may be legal under state law, it is not under federal law, and the federal government can seize your property under civil forfeiture laws.  

I'm not sure I understated the Washington state guidelines and I have a motivated seller in a foreclosure position wanting help.

To that, I'd say if you are going to do it, do it right from the start because if you end up exceeding the exception, the first deal could violate the regs because it is a rolling 12-month look-back.Loan Servicing: There are annual reporting requirements under state and federal regs.