He said to prevent this, I would have the option of them looking only at my rent appraisal on the property, and if it covered my mortgage and expenses, basically making sure it cash flows, (which it would because it all comes in the due diligence of the analysis) that they could bypass the income aspect of approval as well.

I doubt that is the case here.Calling to confirm is a good idea, but even doing something as simple as verifying the senders e-mail address most likely would have prevented this.

Hi, lets say i fix my mother’s credit and get her to buy a house making it a good deal to cash flow (3 unit) a FHA loan the question is; what can i do to PREVENT her for taking a HELOC, refinance, second mortgage etc on the property?

No annoying code requirements to prevent you from building your dream home today!

The $2500 cancellation fee made me a bit nervous but I understood that was to prevent anyone who wasn't a serious buyer from bidding. 

How do I prevent a lawsuit in the future?

Learn the best 'preventative maintenance' tasks to maximize their lifespans. 

That single vehicle can prevent them from renting again, buying a car, and a whole lot more - so settling with you is a hurdle they have to clear to move forward. 

I believe it tends to give me a slightly lower return, because the sponsor is going to be more careful, and if there is a severe downturn will prevent me from taking catastrophic losses.

Though the license in of itself does not prevent this from happening to these poor folks, it surely provides better recourse against a licensed party who does not operate above board.