You've got a lot of questions. Let's take them one at a time.
First, the property assessment means nothing. Absolutely nothing. It's totally worthless as a gauge of the house's value. To determine its value, you either need to get a Realtor to perform a CMA (competitive market analysis)--that's free--or pay an appraiser (probably $300-$400) for an appraisal. I'd recommend a Realtor.
Second, check with a good lender to determine whether a land contract is your only option. I personally like land contracts (and lease-options and lease-purchases, the latter being more common in this area than land contracts). But before determining that you're unable to purchase, check to make sure.
Third, what the owner owe on the mortgage perhaps can help you structure your offer, but shouldn't affect the amount of the offer. It's pretty easy to determine. Check the tax records (you can probably do it online) to see when the owners purchased. Assume it's a 30 year loan. If they bought between 2004 and 2007, assume they put down 0%-5%. Before that, assume 10%-20% down. The tax records will show you what they paid. Subtract the downpayment, then use any online calculator to determine the paydown. That should give you a pretty good number . . . unless they bought and then refinanced. A Realtor can pull up the past sales information and perhaps give you a better figure. But, as I said, this should not be your guiding element in making an offer. What the house is currently worth should be.
As for how to approach the owners: First, have a Realtor pull up the property history. Look to see whether the owners have tried selling in the past. If they have, but were unsuccessful, they're probably open to selling now. Even if they haven't tried selling in the past, they may well be open to it. And here's the script. (Modify it based on what you find out above.) "Hello, Mr. and Mrs. Owner. I've really enjoyed renting this house from you, and I hope you've found me to be a good tenant. In fact, as you may know, because of my circumstances I'm very interested in buying a home. And your house is really just what I'm looking for. So, I don't know if you've considered it, but I'd like to suggest that I purchase your house. Because you're renting it, you probably wouldn't need the full amount right away. I've got a large downpayment, and would pay you the remainder over a period of time. If I didn't, you'd keep the downpayment and be able to evict me. So there really isn't much risk . . . and you know that I do pay on time and that I keep the house in good condition. And the real estate market looks like it may be a bit messy for years to come, so especially if you've thought about selling any time soon, selling now--on your terms, to someone you know--may be a very good option."
That's just a crude outline, but you get the idea.
Make sure you have a good Realtor assisting you. And certainly consider using a real estate lawyer as well.
Hope that helps.