You cannot deny the family because of the lead paint either, that's considered discrimination (you're refusing them because they have a kid) and is against the anti-discrimination laws of the state.

If so, would they be denied to live with us?

Questions and assumptions confirmed or denied, accessed incredible resources such a leases, calculators and people, all of which have contributed to the position I find myself.

Why waste money if I’m going to deny them because I found out through a phone call that their last tenant is evicting them or something along those lines. 

Interesting thoughts, but I'd be Leary of this for one simple reason....if a tenant has "free" utilities they will abuse it.

So this is not the case of animal abuse. 

Any requests for changes should be denied.

Is it legal to say "Sorry, We do not accept section 8"

This is a legal requirement if information contained within the reports was used to deny. 

I was approved for refinance and 2 days before closing  was denied because of venue.