I told the Adjuster that it doesn't make sense why they wouldn't cover me for damages.

That discount as well as the vintage of the loans insulates the fund, in a sense, from fluctuation in market rates rising and falling.There is a correlation to investor desired returns and prevailing market interest rates and returns however in general the closer you are to market returns via market interest the more sensitive the investment would be to rate movement.  

Makes sense what you are saying about a tenant's perspective. 

I bought a coop apartment in NYC when I was single - it was terrifying, but all the numbers made sense.

Also, since they are much more loosely regulated, it is easier for a real estate developer to commit fraud and not be detected.So it makes sense to me that there are rules in place to prevent "the average Joe", who probably isn't very sophisticated, from being ripped off.

Make a little more sense.

Does it still make sense to go through with this transaction?

That doesn't make sense to me but that's what knowledgeable people told me. 

Am I living in a dreamland thinking I’ll be able to find something with these criteria and the amount I have for down payment that will make any financial sense?

If it was built in the 50s/60s (as is very common in Tempe), I'd advise also obtaining a plumbing inspection and have them scope the sewer lines.