@Meghan Edgar suggest contacting a commercial agent that specialises in student housing.

If you decide to pursue it please drop an update as to what the situation is when and if you uncover it in the due diligence. 

I know you have $40,500 but does that leave any room for errors/uncovered items/time delays?

Is there a form letter people use to send out say here is the itemized damage charges and a bill for the uncovered amount?

I assume the question is trying to uncover if I am downgrading because of financial issues?

Glad all this is getting uncovered!

Message hedge funds that specialise in Real Estate, they will be interested in hearing out your offer. 

The types of inspections vary by property type and situation (and locale), but in Illinois, a licensed home inspector generally inspects the home first, and other inspections and tests (for things like lead paint, asbestos, etc.) can be ordered if revealed to be necessary by the initial inspection.Based on the outcome of inspections, buyers may elect to ask the seller for repair work, closing cost credits, or a reduction in the sale price due to flaws that were uncovered.

A Thorough title search includes written inquiry to the code enforcement dept (and utilities, etc) in order to uncover any existing but unrecorded code violations.  

Doubt you'd have trouble with the appraiser or bank--your main concern, which is already clear from your post, is if/when the municipality uncovers the dark secret hiding in your basement.