I believe that the oil goes back to tank whn it reaches a certain level. Just a simple pipe that leads back to the resevoir...

Sounds like you actually have a starter problem.
The starter needs to be a sealed unit. I even open up the rebuilt units, and add silicone around the solenoid locating tab to prevent leaks.
You'll also run into problems with missing/damaged seal washers on the bolt for the bendix-lever.