Do board members normally have insurance coverage that protects them from lawsuits if they are being sued for mis-managing the property? 

The list is in the class action lawsuit filing, as revealed by this article: http://www.businesswire.com/news/home/201503040063...

What happens if you lose all your real estate in the next 16 years due to illness, lawsuit, etc....   

Do most people do a couple of flips/buy some rentals before forming their LLC because they want to avoid the fees and they can use insurance coverage to cover any lawsuits? 

I haven't seen many properties with "In-law suites". 

You have $40k of equity that's at risk of a lawsuit.

Otherwise, that tenant likely has a free lawsuit they can file anytime it's convenient for them, even if the arrangement works for everyone now.

You must file a lawsuit against the occupants of the property, and they have the right to argue their side. 

You were asking her to expose herself and her broker of record to a potential lawsuit which she had no intention of doing,smart woman.If she says yes and it goes down the drain,you can sue her and her broker for giving bad advice on something she should never have gotten involved in which your lawyer will crucify them both for.It's not up to the agent to tell you about the quality of a potential investment,that decision is in the hands of the clients paying the money.Her job is to find the type of properties you are interested in and negotiate the sale with the sellers.Also she should advise you to be through in your own due diligence to find potential pitfalls.She can advise in she agrees or disagrees with the asking price and provide comparable evidence to support her conclusions but,the decision to accept her conclusions is entirely yours and you must be responsible for what happens,not the agent.

My (limited) understanding is that charging rent on a per person basis opens you up to lawsuits for violating fair housing  laws on familial status.