If the deal can't get funded, it's typically protecting you by telling you the deal is not so good. 

Also, does anyone think these amateur MF house hackers are putting the properties in an LLC to protect themselves in such an event?

Also, always protect yourself.

It's an asset protection strategy, I'm sure there are others.

Have you researched the need for a LLC outside of BPs to determine actual chance of needing the protection.

Besides all this, LLC is not the best way to go if you are just starting with a small or no portfolio to protect, especially in CA where it will cost you $800/yr CA state franchise tax, separate tax returns, and setup fees ... you can just get a $1M or $2M umbrella insurance policy under your name and the properties for some protection ... much less cumbersome and expensive.

I see so many out of State buyers purchase an asset on a whim and then talk to a local PM to only find out they paid way too much and it's located in a rough area...I'm a fan of LLC's and lots of asset protection.  

I dont have personal experience with either, but I have tried to protect myself from both.My application has a spot on it where they are required to list an emergency contact person who can assist in their move-out if they become deceased, hospitalized (long-term), or incarcerated.  

The sellers are trying, like most, to protect themselves from the unknown, just like you.

You care for the health of the goose to protect the flow of eggs.