The guy on the lease sleeps in the living room and rents out the other 2 bedrooms for $450/mo to other college students and I do not think he has consent of the landlord.

Dave,The contract already has this paragraph:"if Seller or Purchaser is or may in the future be under contract with a qualified intermediary for the purpose of effecting a tax-deferred exchange in accordance with Section 1031 of the Internal Revenue Code of 1986, as amended, each party consents to the assignment of this contract to such intermediary.

My lease doesn't allow subleasing unless there is written consent.

Transfer taxes are really recording fees paid to the county taxing jurisdiction whenever you record a deed that transfers ownership of real property,  Some jursidictions do not charge a transfer fee when the owner remains a beneficial owner such as transferring property from you to the trustee of your revocable trust, or, transferring between spouses. 

The land trust by itself gives zero protection, it's a revocable trust.Then, another question is the cost, is it worth it? 

The commitment letter had the following language;Transfers/Assumability: Subject to Lender’s then-current underwriting requirements and compliance with the other requirements of the loan documents, the Loan is assumable by a qualified transferee of the Property for a fee of 1.00000%of the unpaid principal balance of the Loan at the time of such a transfer (a “Consented Transfer”).My question relates to the terms of the loan and savings to the buyer.

But from personal experience, I'd might do a land contract in which the seller becomes the bank for a time, until  you satisfy the contract, and the deed is held in escrow by a title company.Another scenario is to have the seller form an intervivos revocable trust, put the property into the trust, and assign certain beneficiary rights to you, along with a resignation of trustee (assuming the seller becomes his own trustee) and a quit-claim of any beneficiary interest to you, all of which is held in escrow by your title company.Remember, you and your neighbor can be as friendly now as front porch cousins, but when you throw real estate and money into the mix, ya never know how it might end up. 

The Tenants agree not to permit any deterioration or destruction to occur while they are occupying the property. 19.ALTERATIONS:Tenant shall make no alterations, decorations, additions, or improvements in or to the premises without Landlords’ prior written consent, and then only by contractors or mechanics, or other approved by Landlord.

It's normally illegal for the Landlord to change the terms of the lease without your written consent.

They could very well lose in which case they will no longer be allowed to host properties without the property owner's consent.