However, the seller is still obligated on the old debt and is an outstanding loan.

I do own some older homes(1910-1920)They are student housing and cash flow outstanding so I couldn't let them go.

That will happen if the balance of the outstanding mortgages and other liens exceeds the value of the property. 

The name on that book was OUTSTANDING!!

A owns house #1 worth $260K that has a $230K mortgage outstanding.

Keep the deposit to offset the outstanding rent.

Given these disclosures directly in the ICX listing, I would guess a) the property has been on the market for some time {and will continue to be on the market for more time} and b) someone else has looked at the property and, based on their findings, the Vendor had to disclose the non-permitted renovations.In analysing this property, I would do the following:1) until there is a written assurance from the City that the current operating licence can be amended to reflect the actual use of the property, I would evaluate the property with the revenue from only the 8 licensed units.2) get in writing from the City inspectors what work-orders are outstanding on the property and/or what work they will require to be completed when the property changes hands;3) find out how many days the property has been on the market and how much interest there has been  to-date.  

I've also owned a fleet of 15 Pedicabs in Downtown Austin for a while and several other small businesses , barbacoa sales, car washes etc....

I feel they are outstanding investment opportunities.

3) Do you know for sure the property is Free and Clear, no outstanding code violations, no outstanding liens or open permit issues, etc.?