We were able to vet everyone ourselves with clear criminal/eviction/income checks and it cash flows better than we planned.  

If you suspect criminal activity, call the cops. 

Personally, I would put more weight on his criminal background check and past landlord references than employment history and credit reports.

I was using smart move online form which gets the background on criminal, credit and income information from the tenant.

@Theodore Arzt Did you complete a full credit, criminal, eviction check on the applicant?

Make the property unwelcoming to rule breakers and criminals.#7 Incorporate the principles of CPTED.

I just wonder how do you guys find motivated seller or FSBO type of seller (no offense to real estate agent).

First off, semantically  speaking, your discussion lacks a definition for the word "Legal"  While there are contracts in which a breach is a punishable offense, I am assuming you mean "Legal" in the "right to seek compensation for damages" sense.   

As a result, a criminal charge was filed against me, and I was due in Court (alongside lots of drug charge cases while I waited my turn). 

That is the thing that has always scared me about the whole process.The good news is you can screen all applicants the same in other areas,  so make sure you have credit/civil/criminal (not in seattle)/references criteria that you are comfortable with even if your applicant is fully subsidized.If your particular applicant has $1700ish income on their own they are probably among the stronger sec8 applicants around;  might be worth giving them a shot if the rest of their background check comes back decent.