Hey Ashley, in this situation I would just politely respond to let them know you've chosen a more qualified applicant and leave it at that. 

You create equity out of thin air (and a bunch of work, stress, money, and hassle).

What are the legal options of landlords and property managers in this situation?

Obviously, if its stressful, unnerving, whatever, then sell.This doesn't seem to be your investing strategy so you don't have to scale up. 

I am sure that you would think that the Turo contract would help with that, but seeing as you are providing it as a service in addition to your STR, I can see issues if there is a problem.Plus you are offering significant services with that rental and that would change your tax situation.

And, at the moment, we’re not positioned to personally acquire more properties to manage unless it’s some creative, no money down, seller finance situation.

Yes, you need to know a bit about running numbers for your specific financial situation but I have worked with many new investors and guiding them to successful rental properties.  

They are reliant on short term financing not deposits (like a bank) or access to financing from the Federal Reserve, so “in stressful times their credit lines can be pulled.”

Here's my situation: I accumulated credit card debt to finance my last property rehab, which is now rented and generating income.

Very similar situation to Kristy.