A well written management contract should clearly spell out what is expected of both the PMC and the owner, to PROTECT both and avoid misunderstandings.

It's always best to consult with a real estate attorney to make sure you're structuring the deal correctly.As the property seller, a wrap or AITD would protect this seller more than allowing the buyer to take title subject to the existing mortgage. 

At the very least, he should have a lease from her protecting him from her just throwing him out if they get in a fight!

What you call guaranteed income is what I call a lot of stress and governmental requirements to get the same or less rent than if you did a good job finding a property and put it up for rent on the open market.Section 8 rentals are for investors who want to keep replicating that strategy in the same area so they know all the regulations and all the players.

2 What do I need to put into place to protect me from lawsuits if someone slips and falls in my house while they are renting it?

It sounds like you're off to a great start.For your next steps, consider starting an LLC down the road for liability protection, but it's not a must right away.

I'd sell my children if they cost me that much annually (wait they already do :)Protect the equity with a 1031 exchange. 

I do a better job of protecting her property, income, time, and sanity.

For example, there's an Employment Verification Form, Forwarding Address Form for Deposit Refund, and so forth, that you can request your tenant to fill out.I want to make sure I'm not missing anything (as well as protecting myself) but also don't want to over-burden the tenant. 

It would depend on your financial situation but most of the time you should have it paid through the LLC as you should be able to get more tax benefits and legal protection.