I can't imagine this is legal in any state (as written), I would assume they are saying that their admin fee is equal to 35% of the security deposit, which is quite excessive in high-rent cities.  

I was hopeful that time would resolve or lessen the bad relationship that my friend has with neighbors and authorities.

I called the Houston Housing Authority and they said my property would get approved for up to $4313 as a section 8 long term rental.

Read and study Principles of Real Estate Practice: 6th Edition by Stephen Mettling (Author), David Cusic (AuthorOr a similar text.  

Ok, I am not Dave Ramsey, not a talk show host, no courses to sell, not an author, not a celebrity.

Anyone telling you there is, is either lying to you or, obtaining nonpublic information without the authority to do so.

In fact he gave me credit for income derived through the LLC including all add backs in excess of my actual cash flow distribution. 

The person at the open house has no authority to make policy changes and wouldn't pretend to do so.

The co-ownership may not [...] conduct business under a common name, execute an agreement identifying any or all of the co-owners as partners, shareholders, or members of a business entity, or otherwise hold itself out as a partnership or other form of business entity (nor may the co-owners hold themselves out as partners, shareholders, or members of a business entity).Hoping to use TIC as a legal way to pool funds without getting into the web of SEC regulations and attempt to keep tax reporting clean. 

As others have said, I would leverage the Housing Authority with these people.