The money waste that prevents will probably fund your retirement.

The only ethical issue might be if you are knowingly preventing their Seller from obtaining at least as much as they could have in any other manner.

You may be able to lien the property for the amount of your investment, and serve him with papers preventing him from doing anything else on the property, including incurring debt, without your permission.

Maybe that's not a good idea, but it would prevent them getting evicted for a non financial reason but somehow still not having defaulted on the lease option.

The whole concept of intrastate exemptions has stemmed from the states trying to maintain their power and really isn't rooted in anything good for either the entrepreneur or the investor in my opinion.  

For instance, if you have an LLC in NJ, and want to buy in CT, there is nothing preventing you to do this!

Proper preparation prevents poor performance.

Is there anyway practical way I can limit / prevent them from sub-leasing? 

It appears as if you may have been uncomfortable/ inexperienced with the wholesale process; therefore experience you a let down.I'm sorry that the lack of communication left room for negative thoughts to take root and grow. 

File a claim. police report. or just deal with it on my own without the insurance company.how can I prevent   this from happening again .Thanks