That is what I thought but consulted a lawyer about a different issue and they said if you don't distribute the proceeds you don't have to pay taxes.  

I am not a lawyer or CPA so take it for what it is worth.

Get a lawyer to draw them up or at least look them over, this is not something that you want to be cheap about

(The other 1% is accountants and lawyers.) 

I mention it to every prospective tenant during the viewing regarding applications, but my wife (corporate lawyer) says it creates a potential liability if not on the website.

Can a lien still exist on the property even if the county lawyers advertised and sold it as "free and clear?"

@Donnell Durden  First and foremost, consult w/ a lawyer so you can learn about the eviction process is in your area. 

The private lender can be your cousin or your friend Bill (who should check with a lawyer just to ensure there are no licensing things for one-off private mortgages).This is still going to be at a higher interest rate (well, unless Bill is just doing you a favor and only WANTS to charge 3%...), but it's only for about 20% of the acquisition cost of the property, rather than going hard money where the ENTIRE acquisition cost is at a hard money interest rate. 

This is not very expensive and is easy to do without a lawyer; they usually don't even show up in court, so the Judgment is automatic and at least there is that much satisfaction.

I was informed by a few lawyers that this type of LLC has not been seriously tested in the court of law so they are uncertain as if it will add additional protection or not.