One of the concerns would be, how long would this last until regulations catch on?

Being from illinois, I do get a kick at how much regulation goes on out there in tennessee - where people give me guff about how our local politicians here are so intrusive. 

What did they do specifically?

Not only is it the right thing to do to help them get their legal ducks in a row about knowing SPECIFICALLY what the seller did wrong, ie did not disclose and can prove it was done for the sole purpose of deception to make the sale "smoother" but it can help you look good and have you learn how to avoid in the future (as you say "tighten up your due diligence")It sucks when agents "help" 1st time or largely inexperienced buyers long enough to make the sale and get their commission but then peace out on the client when something like this happens.It It seems like you are attempting to do the right thing which is admirable bc at the end of the day, the court system is the closest thing to a "business police" that ppl can get. 

If you hired an agent or a broker to work with you, you'd be covered - but regulations & laws vary from place to place.Screening is best done by establishing a set of guidelines to qualify applicant tenants, then sticking to those rules to avoid legal issues (and for your own sanity).

She knows all of the regulations for the area.

If possible, could you please break down the most specific step by step process you take on your flips?

Quote from @Sonia Vanegas: You both screwed up by failing to be specific.

Specifically, is the rental market stable, and is reliable assistance (like agents, property managers, contractors, etc.) available?

The STR regulations are very black and white and I don’t see many, if any, clients having issues with obtaining insurance if the house is in good condition.