The change of any beneficial interest in a trust can trigger the due on sale, entering a transaction process to mislead a lender can be mortgage fraud.

What protects the seller from fraud or sketchy behavior, as the buyer is going to be making those payments directly to the lender is their any sensitive information that can be divulged, and is there a way that I can explain it to my potential seller to ease their nerves and make the deal move more smoothly?

If you don't you are committing mortgage fraud.

Is it necessary to verify their identity prior to giving them the code?

Rick Pozos  correct you can sell a contract you just can't go about it the way 99% of would be wholesalers go about it... also in many instance's were there is a ruse to enduce a seller to contract with you in the first place.. a decent attorney would consider that fraud in the inducement.If you walk in and tell a seller I am going to contract to buy your home I have no intention of personally buying it and I am going to resell this contract for a profit.. and you have that full disclosure then I am personally good with that.. but you know and I know thats not what happens....

@Shakia Sistrunk to back up what Rich is saying, suburban deals have an INSANELY higher closing rate as Philly is rampant with fraud, an insane amount of judgements, payoffs, and liens.

I am doing my homework but I heard it prevents fraud as well as lawsuits as the first lein holder gets priority.

The process (buy low and remodel) is identical. 

You may run into gift tax problems consistently if your partner receives rental income but isn't on title, as well as running a risk of fraud or similar depending on circumstances. 

However, in regard to FHA-insured investment properties, I was able to find the below clause, which is somewhat revealing as to how this would likely be viewed in the case of an investigator sniffing for fraud in an owner-occupied property."