Only disclosure is lead base paint because was built before 1978 (old portion of home only) .

Matt,I believe you would pay capital gains on the portion of principal received and interest paid would be taxed as ordinary income. 

Regarding the name portion of my question...I was wondering if the HML would have a mortgage on the property or be named in the closing documents somehow.

This is essentially the same as acquiring an option to purchase a company's stock or a commodity.I would recommend having no performance ties between the two agreements and would stay away from inflating either the market rent or the purchase price of the property and applying/rebating a portion of the rent towards the purchase price of the property.  

If so, they are fine in residential properties, but do not work in a Master -> sub-master -> key tree so are a not practical for multi-unit properties.We have fibre (80Mb/30Mb) into all our properties for our building monitoring/management and since we only require a small portion (though high priority) of the bandwidth, we offer complimentary Internet to our tenants (each unit has its own private network).

Guaranteed portion of their rent paid.  

Having been an agent, I offer the extra thought that unless the agent in question is a broker he/she does have to split a portion of her commission with her broker.. that split varies alot between 30% - 70% avg probably being about 50%.. also you would be asking for post tax dollars   Neither of which excuse anything that even appears shady, but would make refunding money more painful for the agent.  

Also in Connecticut there are programs for individuals who are disabled to rent and the state pays for a sizable portion of their rental expenses, if not all of it.

However, I suspect the Sellers CPA will say, assuming option one above is not a viable option, that option two will result in a taxable gain to the extent of the 400,000 not funded and can the gain paid as the payments are received ( remember if seller is self-employed and historically makes estimated tax payments, that they need to include the estimated gain/pro-rata portion of depreciation recapture taxes, in those estimated tax payments  in order to avoid any unnecessary penalties and interest since the tax liability is reasonably able to be determined.  

We reinvested a portion of the profit from live-in flip #1 into live-in flip #2 which we plan on listing in March 2016 after obtaining my real estate license.