Also, I have become very interested in the Casita (or Mother-in-Law Suite) set up that some of the properties have out here, and definitely see opportunity there!

If you fail to follow the rules, you may open your personal assets to a lawsuit.

They may get a charging order if they win the lawsuit which entitles them to distributions (but distributions will never be made).

The plan is to purchase a single-family house (3 bedrooms) with a large basement or an in-law suite, so I can renovate & live in the basement/in-law suite while renting out the main part of the house.

That is the company upon whom lawsuit papers may be served, the same as serving you, if you are sued.

Do a google search for "foreclosure" and "lawsuits".

If it’s lawsuit protection you have to make sure you have nothing to do with how the rental is run, or you’ll be sued personally.

Is this a legit lawsuit I could bring against him?

I spoke with someone at the Village and they said there were no laws or ordinances for short term rentals yet and that they were "waiting to see what Chicago does" as I know there are some lawsuits being worked out in court and they expect that Chicago will come up with blanket rules for Cook maybe? 

For example: MIL/Mother in Law Suite)