My policy is similar to @Bruce Woodruff.

This means their insurance policy will cover you on any claims made by the tenant.

Can't you get your builder's risk policy from the same agent you currently carry your general liability (for your GC business) with? 

If they are VERY professional, they will have their processes in writing as verification that policies are enforced equally and fairly by their entire staff.6.

Each municipality is different but you should be verifying the steps needed to get the this parcel shovel ready and consider that an insurance policy. 

When you talk about liability you can offset that by making sure you have a good Insurance policy and close the loan in an LLC.LLC protects you and your assets from lawsuits and any litigation from any and all accidents/injuries.

This sounds like a pre-existing defect so you will have to review your insurance policy but I am guessing there will be an exclusion.

I have transacted at least 5000 properties as a flipper developer and lender and I have had one instance of this. were someone recorded a mortgage 5 minutes before my loan went on record so when I got my title policy I was in second instead of first made a claim to my title insurer and they rectified it quickly and went after the bad guy criminally. 

Unfortunately, there’s more to it than that:Call the property insurance company to verify the policy is current.

When I onboard a new client I always ask them about insurance and tell them they need STR compliant policies etc.