The seller has agreed to carry up to 20% as a second note to cover the down payment, but I can not find a lender willing to go with that deal. 

I do this for any vendor I use each year, as I carry workmens comp on my properties for myself and workers I know aren't covered themselves. but if I can prove my vendors have insurance when I'm audited, so my insurance agency compute rates in my favor, because vendors had their own coverageAs far as lien waivers, it's good practice to have anyone that worked on the house sign they have been paid and a lien waiver is used for that. 

What type of insurance should I carry?

An hour later he calls me back and tells me that the seller cannot carry the $20k and that I would have to come up with the full 15% down plus have 6 months PITI in reserves.

Account ClosedFair enough John, carry on. 

But is there a limitation on the number of properties that you can BUY from sellers who are willing to do carry-back financing?

The first option is seller financing, see if the seller will carry the loan.

You can make an agreement saying that the Private Lender will put up the Capital, while you render service and carry out the rehab.

Most agents carry E&O insurance.

You're actually look at a seller financed "wrap mtg", which is a form of sub2, with the seller carrying the balance.