She is having other people stay there (against the lease),  do they automatically become trespassers at that point in which I can have them removed by calling the police?

Think of it from the PM's perspective: if you were them, would you deal with the significant headaches of a C or D area (non-paying tenants, trashed properties, crime, police calls, etc.) for a 10% cut of a single property (probably just a few hundred bucks a month) ...I wouldn't.To make matters worse, the property isn't appreciating (because it's in a low appreciation market, or even a depreciating market), and the tenant pool is primarily made up of people with bad credit, low/no income, and a history of property damage at the previous places they've rented.

Should I call the police and tell them the situation? 

I encourage all others who have been swindled or have had similar experiences to share them too and to submit complaints to the Better Business Bureau, Department of Consumer Affairs, Consumer Financial Protection Bureau, State Board of Accountancy, Federal Trade Commission, Police Department’s Financial Crime Unit, and the District Attorney.

But get title insurance...through a local company, not their company.The police do not come when you close. 

After a few months he must of told his friend that the house was empty (and I was out of state) and gave then the key he stole.Apparently they've been there for 3 months or so and I was able to get her phone number and was trying to be nice and give her the chance to leave willingly before involving police/court.

I encourage all others who have been swindled or have had similar experiences to share them too and to submit complaints to the Better Business Bureau, Department of Consumer Affairs, Consumer Financial Protection Bureau, State Board of Accountancy, Federal Trade Commission, Police Department’s Financial Crime Unit, and the District Attorney.

Have had police called multiple times for them with reports and yes I'm very upset cause I was way too nice and they lied and took advantage of the situation.

I encourage all others who have been swindled or have had similar experiences to share them too and to submit complaints to the Better Business Bureau, Department of Consumer Affairs, Consumer Financial Protection Bureau, State Board of Accountancy, Federal Trade Commission, Police Department’s Financial Crime Unit, and the District Attorney.For the potential franchisee owners who are considering this as a business, I would run the other way!

I would also try the police they might do something as well to protect the children.