As a potential renter, it is smart that you noticed that the "apartment" is actually classified by the real estate agent as an "in law" apartment. Stratford's zoning regulations (section 4.1.4) allow rental of rooms in a single family to non-family members as long as there are no more than 2 unrelated renters and the total occupancy of the household is 5 or less. Further, if the property was used in this manner prior to zoning, the number of people allowable actually can be higher.
The second part of your question regarding foreclosure brings up other considerations for you as the renter. First of all, someone who is "undergoing foreclosure" still owns their home. And they still have a right to lease the apartment and collect the rent. As a potential renter, you are wise to consider what that can mean to you as an occupant of such a home. Considering the length of the foreclosure process in Connecticut, and depending on how long you are looking for the rental accommodation, it might not affect you at all. If the house DOES get foreclosed, however, it is most likely that the bank will be willing to make some arrangements with you. Whether that is to allow you to continue to rent (and pay the rent to them), or whether they are willing to make you a cash offer to vacate are just two possible scenarios. If you are willing to accept the rental under what might be uncertain circumstances, it might still be a good opportunity for you.
The third part of your question regards homeowner's insurance, which is again a consideration. This is really the owner's risk, not yours, except for that part of the insurance which might cover liability/personal injury. But the lack of insurance to cover damage to the building itself is really more of a problem for the owner and the lender. And the lender will usually be notified if the owner stops paying their insurance. At that time, the lender will usually do a forced placement of insurance on the property...much more expensive to the owner, but the bank usually wants to protect it's interests. As a tenant, you should have your own renter's insurance to cover all of your belongings. In the worst case of a total loss to the property, your renters insurance would cover your belongings, and the owner would have to deal with his own situation.