Except lease contract, statement or evidence of security deposit, move-in check-in list, what other documents should we get from the seller? 

Ask the seller to provide you with copy of all leases, Schedule E tax returns and bank statements to verify that the Actual / Economic occupancy is correct and True!. 

It seems to me getting the mortgage first would make the most sense since the seller would be frustrated if you didn't have the money and someone else did. 

Can a bank foreclose on a seller financing deal that's owned free and clear?

The benefit to the seller, is that they save on commission... so they should at least cut a bit of that off the price, right? 

If this is what you have been looking for and you have talked to the seller and found out his story of retiring from the game, looked at the numbers and it makes sense for your "WHY", then all that is left is to execute on the deal and stay on course with your due diligence on the asset itself. 

Since the property is in the family is it possible to do seller financing and still get a 203k loan for the improvements?

Having said that there is nothing that prevents you from wholesaling a property if you are not miss-representing what you are doing and making false promises to the seller.

I thought it was a perfect investment, and I would have been willing to buy it for between $80K and $100K.Within less than 12 hours the sellers stopped taking offers on the house because they had so many.Be ready to move fast.

By definition, a "smoking deal" for the buyer is a "smoking loser" for the seller.