Regular inspections would not have prevented it. 

Then, if a circumstance happens in your life - loss of a job, divorce, death in the family, new baby - that prevents you from paying out that cash to support the property, you will be forced to sell or even hand back the keys and lose everything.So, focus on cash flow!

Make sure to document everything in writing to prevent a "lean" being placed on the property. 

Looks like you learned a lot of lessons on this project and I have taken many notes to hopefully prevent me from making the same.  

The neighbor then rushed out of the house worked a deal with the tow truck driver and she ended up paying him 160 dollers to not tow his car...This upset the HOA so they sent us a scathing notice in the mail telling us that it is agianst the HOA policy to interfere with parking enforcement..clearly she didnt prevent the tow truck driver from doing his job didnt interefere with anything other than letting our neighbor know that there car was getting towed.

We thought at the time our friend was willing to finance the property for us, but after giving it more thought she did not want to tie up her money because it would prevent her from purchasing anything for herself.

The biggest drawback I had that prevented me from doing what I consider a "Dream Job" is lack of funds.

My question is: is there any laws that prevent the property management co. from using other collected funds not allocated as the security deposit for work that was related to damage from the past tenant?

Or are there already laws that are set in place that will prevent us from creating our own agreement?

You do this for various reasons including preventing the seller from selling the property to another buyer without your knowledge.