However, the REI that paid $120k for that same property, if they only put up 10% DP, would have a cost of only $12k...less cost for a property due to using seller financing as the strategy.Now, before someone says you can't get a 10% DP accepted, I would say they're wrong. 

Am I doing it wrong?

Anything that can go wrong, does go wrong, and you don't want to be a deer in the headlights, you want to have someone in your corner that has seen it all and knows how to deal with all the hurdles that come. 

So, I think it is likely that any individual resident suing me would result in immediate lis pendens for everyone since they've operated as a group in the potential wrongdoings here.

You can never go wrong doing the right thing! 

People can sue you even if they are wrong.

What could go wrong?

Even if this weren't the case however I would still keep them separate just for an easy paper trail and to avoid any appearance of wrongdoing.  

What am I doing wrong?

Is that wrong?