I finally got this to work. Thanks for all of the input guys. I swear there is some weird intermittent bugs that were making this harder, or I just was working on it too long. For example, you would think that the following would place the player in front of the ground:
If Player overlapping ground
That actually put the player behind the floor!!
Separate layers wasn't an option because for example the same tree had to appear behind or in front of the player depending on if the player approached the tree from the top or bottom.
A side effect of what I was doing before was causing the order of the player to move behind the floor. The new solution doesn't have that problem. Placing the floor beneath the player didn't work in the earlier case.. it ended up causing this crazy rippling effect in the tiles.. pretty cool actually.
So what ended up working was:
I changed all of the trees, walls, rocks to sprites.... left the floor as tile background. Put each in families, terrain and floor. Then..
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Start of layout: Send player to front
If player overlapping at offset (0,100) place player behind terrain
Else Send player to front
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No other combination worked... so simple I'm kicking myself