Underwriters are like the FBI, there isn't any scam that they haven't seen. 

One, there are billions out there in seller financed transactions and much of it circumvents what banks believe to be a road block to alot of business, with refinances and lost fee income, the other is due to the fact that so many buyer were getting screwed over by scamming seller, who took the down payment, made terms that could not be reasnably met, foreclosed and did it again.I don't think any investor/seller should service their own loan, not when there are originators and servicers available.

Has anyone encountered this before? 

Be prepared for rejection as you will most of the time encounter this situation. 

We have never encountered any problems.

When you encounter a market/property where there are many, many offers that end up raising the end purchase price to a number much higher than you thought it would (or higher than what it should have been), all you di was run into a group of buyers that are focused on the property and not the deal. 

Search the BP for ADU appraisals to encounter numerous examples.

They just scammed my client out of $7,000 for upfront points to be paid to them, then they ghosted us.

I have had walls damaged in my own home and have encountered the same problem visiting family & friends. 

Be encouraged and don't give up regardless of what roadblocks you encounter.