If it is already vacant, you might also check with the local housing authority/code enforcement people to make sure it hasn't had the occupancy permit yanked or been condemned.

Went to get a building permit.

And, yes, they were licensed and permits were pulled (for that entire rehab) and all inspections passed.

Assignments are a bit tricky as most of the major banks no longer permit it.

Will Landlord be permitted (or will they require) to view the tenants annual 1040 or pay stubs or other proof of income?

They have to go find and purchase land, get permits etc, build the house, then sell the house.

Unfortunately he did some things wrong (lack of permits) and when he found a buyer, a new appraisal was only $166K.

I would get an appriasal anyway cause they will have land value and replacement costs on the report.One you have a basis for the value of the dirt, estimate demolition, waste disposal, permits, etc.

Its beenon the market a while and I am worried maybe something serious is wrong with the house like an addition that isn't in code/permitted or something along those lines.

Rather than inflate the value of the house, they deflate it so the lender will permit the borrower to sell the place for far less than what it's worth.