I am starting to see some REOs with phrases in the agent notes section of the MLS that state "the bank WILL prosecute ALL trespassers".

You might want to think about (Trying) to get the local Police to take a report about "Fraud" regarding the letter, and see if the District Attorney will prosecute the person.Someone going around defrauding a business like that out of thousands of dollars in income, might get the attention of the District Attorney.Good Luck!

There is no FHA police and no one here can give a case where someone was prosecuted. 

Ohio has gone after and prosecuted a number of wholesalers for brokering real estate without a license. 

Section 8 and their portable vouchers--they make it simple enough to read the terms, conditions, and responsibilities of both the landlord and the tenant participating in the program.The time for an attorney and review of what you were getting into should have been before you committed what is actually a big NO-NO (as per section 8 guidelines).I say this with no love for Sec 8, and I am sorry to hear of your troubles; however, with almost unlimited resources and with the Gubment on their side, you should consider yourself lucky they do not prosecute you for fraud.Get yourself a good attorney!

The reason why is that if you had a large judgement against your LLC, the prosecution could go after the equity contained in all 50 properties. 

I am not suggesting you break the law but I don't know of anyone who has been prosecuted for doing this.

This law has been used to prosecute borrowers and their brokers who lie on their loan applications or "fudge" down payments for FHA loans.

I've found the problem with prosecuting someone in the US at least, is first figuring out who has jurisdiction, next, getting them interested in prosecuting a white-collar crime, particularly when the ultimate victim is an insurance company whose business model is assuming risk, then finding the perpetrators, difficult since many times the one you can identify is a front for the main bad actors, add in the time, money and resources that need to be expended to get it in front of a jury who may find reasonable doubt and acquit and most insures I've worked for decide it is a business risk, pay the loss, see if there is an easy fix and move on.  

Your local county prosecuting attorney.