I'm guessing a local lender has seen this sort of property before and would know exactly how it is handled.

Or does one cross-collateralize as a sort of covenant in case the value of the subject property falls?

The fundamentals of the market may be independent of the motivation of the seller...or they think it's good time to get out.

Has anyone rented in this sort of situation?

I cannot give this sort of advice, as such, I'd defer to another CPA but I personally use an LLC with my wife on most of our properties and businesses currently

Probably minimal education, low income, no emergency fund, poor credit and/or in some sort of government assistance...for life because this is the USA and somehow people can do just that. 

People sell at a discount when there is financial motivation, lifestyle motivation, or they want the "easy button". 

Or if there was possibly another way to go about still getting it as this is sort of a no traditional eviction. 

I think you can probably purchase some BRRR properties with that sort of down payment.

@Robert Matelski tks that's a great advises, I'll check that market and I really appreciated, that's make me push forward and keep motivated