Check with the city, for any outstanding issues in terms of building violations; if there are any in their records.Get all the permits from the city.For known issues like mold in the basement; have a company to do mold analysis before and after.

If they did sign the lease with new rent, then you can send them a violation notice and ask them to pay or quit.

If the insurance requirement is part of your written lease then send notice of lease violation.

If the rental license is good for 2 units and there are no open violations I wouldn't be concerned.

@Trevor PraetschAt the end of the day, the seller is communicating with you, and as long as he or she does not violate the Fair Housing Law, in my opinion, it's okay.

So, for example, you might charge more to Unit A if there is one more person living there, even if it is identical to Unit B.RUBS can be a little of a challenge because of the delay from usage to billing and the potential to violate a local ordinance. 

So I recently looked into buying distressed properties and apparently I could violate california civil codes.

They likely just look for code violations.

I don't think I'm allowed to post it here but in my signature you can go to that page and click the "100 Free Ways to Find Motivated Sellers".Some on our team have put together a code violation list and then made 2-3k/week renting it out so you don't even need to do the deals but help investors do them. 

You should still follow everything from your lease and send them violation notices.