I really believe that technology is going to hit the real estate industry very hard in the next 5 years.

Find a new lender..Run your own numbers, Math doesn't lie and none of this makes sense.  

They had been bamboozled by a wholesaler who flat-out lied about the amount of work their home needed and that his crappy offer was the best they would ever get.They were nice kids, but definitely not sharp when it came to the real estate market.I sold their home for $121,000 more than the slimebag wholesaler's offer.  

Many of the answers to your questions lie in taking action (real analysis and offers).

I’ve had sellers lie on paper just to get the house sold (and I have caught them in their lie too).

Low lying laterals, old buried drum traps etc will freeze.

This is where the 1% rule, and percentages in general, are misleading at best...and lie to you. 

There were much more serious issues going on, such as the tenant lying about her criminal history and hiding a community control order.   

If it walks like a duck, and quacks like a duck...it's probably a lying tenant! 

With modern technology getting her information and signatures is not difficult.