They are bringing the equity into the deal while the bank is bringing the debt into the deal. 

Do you mean where a lawsuit has gone it's course and the Judge has ordered a sale or do you mean people who haven't paid their mortgage and the bank has decided to do a foreclosure (Trustee Sale)?

Today, I got pre-approve for an FHA loan for $195,000 from Citi bank using all the government programs.

Many of the local banks and credit unions offer intro rates. 

Expenses to acquire a rental property are capitalized and depreciated once the unit is placed into service.Payments to a bank for an appraisal or an inspector for a home inspection are items that are normally paid for before closing. 

I am now looking to do the closing but the trustee mentions that the previous owner is trying to sue the bank and they are not allowing to do the closing.

As I am able to self fund my office space without bank assistance, what should my focus be in finding a space?

From your recommendations on PM, contractors, banks, inspectors...etc...people will see that you know the area, recommend good, solid and reputable companies and will keep coming back to you to purchase the property from you. 

After having a few banks evaluate the property and receiving strong indications of a favorable LTV and interest rates I decided to move forward with the deal.

The law will enforce the lease agreement, as long as it legally abides by your jurisdiction's landlord laws.For future tenants, adding a type of "escape clause" only benefits the tenant.