, they would bang on the ceiling of the upstairs tenant when he came home from work late, they would curse at us all when they saw us outside (despite their claims of being good Christians), complained about hearing the TVs, and on and on.

Well IMO, this lender has no claim to anything if thats the case, but perhaps he's in a tight spot financially.  

Getting insurance is very important, but let's imagine that you have $1mm of insurance on a property and someone is injured on the property and wins a claim for $2mm.  

A court order to appear in small claims court for the bill, plus later fees, plus court fees.  

You are free to deed  your property to whomever you choose, subject to your spouse's right to claim a certain share after your passing.

Appears that only the owners of the property or those that are owed money are able to claim an of the excess funds after tax sale.  

Perhaps you could just quit-claim it over to your LLC after closing?

Keeping the rental and option to purchase separate will help protect you in the case of a default so you can evict instead of having a judge force you to go through a foreclosure because a tenant claims equitable interest.

Your LTV will be close to 100% (based on purchase price) if you do it any other way and you won't have any way to claim your sweat equity/improvements against the LTV.  

I'd be far more worried about discrimination claims by screening to some undocumented process.