I don't understand the difference between renting houses and renting condos in a single building, but it is what it is and I want to make sure I'm following the law.  

no legal advice but from a fellow california landlord start the process. if she is a professional tenant she will quickly figure out all the things you have done wrong and cause more problem for you than if you just did it right.When my tenants are late or problem children  I sedt a strong professional letter telling her she has X time to pay or I will start the evection process under the fullest extent of the law.

I am a recent graduate of California State University of Fullerton where I obtained a B.S. degree in Political Science and American Studies.

I know of American Homes For Rent. they have tons of big/newer houses in my area and they buy like crazy at the sheriff's sale. they bought a short sale across the street from me a couple years ago. they paid nearly retail. it's ridiculous. these are homes where the property taxes alone are $10k/year. there homes sit for months in between vacancies.

That special advisor role must be called out in the operating agreement, and some custodians will have something like an "engagement letter" that the advisor has to sign, acknowledging he/she is familiar with IRS law pertaining to prohibited transactions, and agrees to review each LLC transaction for compliance.

Finance is not something you are going to structure, the structures all fall under law, in one way or another, you won't be able to "structure" anything that is not covered by law.Exceptions come into play with partners in a business entity, but you have to find those partners privately or seek legal advice in following exceptions and/or structured methods, such as crowdfunding or special provisions under the SEC Regulations. 

Practice of law rules for Tax Courts are different than normal practice of law rules.

Sounds like Murphy's Law was in full force here!

Their deposit still has to be managed and returned according to applicable laws, regardless of who's holding it.What's the liability issue here?

What the law and the process says is all that counts.