We figured out the source of this issue. It turned out to be either a design flaw or manufacturing quality control issue related to the clamps that hold the Z axis motor shaft in place.
I will explain more on this and post photos/video of what I am talking about.

In a nutshell, the clamp that is supposed to hold the z motor shaft in place, tends to slip even when tightened very well.
We added washers underneath the motor so it would not slip down too much. When we added the washers, and re-tightened it, it still slipped, but the washers are keeping it from slipping far enough to rub on the screw heads under it. the photos and video will explain it all later.