So, proper planning is critical to make sure that all of the moving parts come together.  1031 Exchange Qualified Intermediary Make sure that you are dealing with a Qualified Intermediary that has some type of government oversight. 

Don’t let the fact that the government is paying the rent sway you.  

The state and federal government look at investment properties the way that they are correctly structured which is a business not just an asset.

Obviously there is 3.5% with FHA, but are there any low government programs or random credit unions/savings banks that allow 0-10%?

But the house and two upstairs apartments became vacant at the same time and I felt we needed the rent, so we took three un-vetted tenants on government programs (learning mistake). 

That means your estate plan will be based on California laws and likely if you were to form an entity, you would want it governed by California laws so that member disputes are settled according to California laws. 

If the city or department has a credit union, I would also check with them about local programs for government workers.   

I’m also impressed you trust me as much as the full faith and credit of the United States government or even triple A bonds, which pay higher.

I would highly recommend reaching out to your local governing body's housing/planning department (city or county if you live in an unincorporated area) as they will have the oversight on such a matter and or can direct you to who you need to speak with. 

If true and the loan is government secured, my understanding is that is mortgage fraud and mail fraud.