@Jeff Filali, how does this help them prevent me from seeing how much they are making on the deal.

I have my property inspected every six months but I still understand that it doesn't prevent the place from being trashed. 

Mortgage lenders understand deeds, though, and use loan due-on-sale clauses to prevent unauthorized property sales or transfers.

It's a mistake that flooded my basement and ruined all the sprinkler valves and backflow preventer.

Most college towns have limits on the number of unrelated individuals living together to prevent exactly what you are planning.Defiantly a better plan to have a separate basement suite as you will still need to comply with building codes for window egress and possibly a separate basement entrance.

If he's trying to get owner financing it may not matter, but it may prevent him from purchasing it outright.

Perhaps as an "office" or a den with no privacy.The counter top extension with the legs seems bit unusual, especially since the floor height differs and prevents chairs being up close to it.The split vanity in the master bath is bit unusual, also.

By not following their own rules they have let a fraudulent bid occur thus preventing a valid bidder from winning. 

Fannie Mae homes often come occupied, which will prevent interior access until after closing and evicting the occupants.Many vacant properties will be missing plumbing and wiring.

Thank you @Bob B.Nathan G. all for the input.