So how do I go about finding lenders without the strict overlays?

All that is required by federal law is the pamphlet you are describing be provided. 

Please be aware that separate Baltimore County law prohibits more than two unrelated adults from living together unless the unit is authorized by the county as a rooming or boarding house.I thought the rule was the you can have more than two unrelated adults if you just register your house as a rental unit.Do you have any details on how difficult it would be to get a house authorized as a rooming/boarding house for college students or is it pretty much impossible to do?

Stick with your state landlord tenant laws on this and suggest he ask family for help if needed. that you understand he may have to relocate and it would be better for you to let him out of his lease than have him not pay and you have to pay more money to file eviction.. 

We still do not have formal protocol released from the IRS as the laws allowing anything were just passed by congress. 

@David Wright I don't know Michigan law, but here in Georgia you can transfer title in a property you acquire via Tax sale with a quit claim deed.

Not just because you want to make profit but it's also a small buffer against Murphy's law. 

One trick builders in NJ have used forever, although I am not sure if the laws caught up with them yet, when demolishing a house, leave one exterior wall standing.

The reason behind this question: Our township owns the 20 acres that is behind my In-Law House.

We frequently provide value to the forum by answering questions and posting updates to the tax laws they relate to real estate.