There are coastal commission guidelines in addition to the zoning and building department requirements.

If I were you, I would look into the HELOC to access your additional equity.

Additionally, the schools for this neighborhood are excellent.

Sounds like a non starter.......there would be no payment history so it would sell at a Big discount and those note buyers are looking for Larger yields and Lower LTV’s than your standard refi.  

I do however, think that it would present a very unique opportunity for a buyer with children whom wants to relocate from the city (easy commute in) and perhaps have additional rental income, OR move the in-laws into the ADU. 

In addition, try to network with a realtor who may have some buyers that had deals fall apart.

In addition to the educational components you mentioned, I suggest you network with like-minded investors locally to you and in the areas where you plan to invest. 

Does UMMC offer any incentives in addition to Live Near Your Work?

I could easily put in an additional 30k or so and purchase something in the range of $800K.

The reason for the seller's willingness to discount that much in today's climate, from what info I have so far, is due to the extremely low rate on the modified loan (less than 2%, recast for a new 30 year term).So due to the rate, even at 50% of UPB, the return on my investment would be around 4% after considering servicing fees, etc., which is not nearly enough to interest me in this deal, considering the risks of borrower re-default, etc.