Wasn't a title insurance policy purchased for this foreclosure auction winning and if so, wonder how did they not catch the 93 mort (2nd?)

As you build your reserves you are building an insurance policy to cover you in times of need (and they WILL come).

You will likely need lease terms for pool rules and liability, guest policies, parking if there is limited space, and a clause about not being responsible for personal belongings and/or renters insurance to cover their things.  

Has anyone run a place with zero late rent policy?

Our policy is that pets must stay off the beds and couch (we provide a comfy dog bed), and thus far we've seen no evidence of damage, and our cleaning team hasn't had to deal with any major dog hair issues.

I know that there is a certain amount of time that they look back at the original cost of the property (I think its 1 year)  but I am sure each bank has there own policy's if they are giving you a hard time tell the buyer to use a different bank or a broker that will know what banks to use for such a scenario.  

I don't remember what their limit on rental properties is, but you shouldn't have any issues with adding a third SFR to your policy.

It's company policy.

He's my insurance agent but we have a bit of a relationship as I have a lot of policies with him and it's a small town.

@Enrique ReyesAs @Wayne Brooks states, failure to get a title policy can result in problems.