You'll see online the whole menu of 'lawsuits of the day' filed by tenants who end up not getting the next rental because of something said/not said by the former/current landlord. 

One good point I saw was liability coverage/umbrella policies in case of suing -- which begs the question -- Does an umbrella policy covering the rental property protect against a lawsuit that would arise from this situation?

My guess is your HOA is not 51% owner occupied and may have small money on reserves or a pending lawsuit.

Luckily we were able to find a happy medium. 4 bed/3bath that had separate mother-in-law suite above attached garage.

Save the money on lawsuits and get this fixed. 

Maybe you could find one with a mother in law suit or make a mother in law suit.

It would be quite a feat for a lawsuit to have enough steam to go through all of that. 

If yes, then as between (1) and (3), I see (1) as potentially advantageous if you're going to have many separate deals for which you want to limit liability (either because you're worried about lawsuits or because you want to arrange for mortgage financing). 

Although it is quite simple to compile documentation that will get you past the State Corporation Commission, that does not mean such documentation will protect you in the event of a lawsuit, or that such documentation is maximizing the amount of utility and equity you may be able to achieve with your business organization.It is never a good idea to work on legal matters DIY.

What if some contractors did work without the proper insurance, how to protect from future lawsuits?