Rental Sold Contract for Deed has come back Uninhabitable! Help!

[Marsha Hill]

During the worst recession in history, when NO ONE could get a real estate loan, I sold a property to a young family via Contract for Deed. They were to get their own loan in a year, after raising their credit score from 540 with payments via EFT from his paycheck. They took possession 2/1/2009.  After 2 years, they were still unable to get their own loan, and most banks weren't giving them until about 2013, and then only with a 680 credit score or above. So, I allowed them to remain in the home, paying the rent, hoping that they'd soon be able to get their own loan.  At about the 2.5 year mark, they divorced, switched partners, and the payments that were coming to me via EFT from his Air Force paycheck, came late from her and with excuses for about 2 years, until I made it a big issue for her to get it set up on EFT again.

Long Story Short: She never allowed me to come visit them at the house or to check on it.  Since they were buying it, I didn't worry too much about it.  Now, after 9.5 years, she said she could get a loan, but wanted to only pay me the amount that the amortization schedule principal showed that she owed ($96k).  I couldn't convince her that the contract required them to pay HO Insurance & RE Taxes, but since I felt they couldn't or wouldn't pay the Homeowner's Insurance or the Real Estate Taxes, I had paid them for all of this time. So, she went to an attorney and I found one, too.

So, I added the Taxes & Insurance up, gave it to my attorney, and he presented her attorney with a bill for the $38k in taxes & insurance.  She balked, told her attorney she wouldn't repay them, and said I could have the house back in "as is" condition". 

I was working out of state in NY for 6 weeks, so I said that I couldn't accept a house I hadn't seen for 9.5 years without seeing it with an inspector.  I emailed her that i could see it over Labor Day weekend or the following week. As usual, she said they wouldn't be there, and I should only talk to her through her attorney.  I feared what she was up to, but didn't even know where the key for that house was after 9.5 years.

On 10/3/18, I received a call from the City, which provides gas for heat, water, sewer, trash. I was told that my tenant/buyer had given them notice that her last day in the house was the 10/3.  I immediately drove over with a friend and found a 4-5 BR 2 BA Victorian and the 1 BR 1 BA Mother-in-law Cottage empty and un-inhabitable.  Luckily, the back patio door was not locked, since I didn't have a key. 

A neighbor told me that she had been raising manx cats, and both houses reeked of cat spray and urine. Wood floors and carpets were ruined.  Lights were hanging by threads or sputtering.  Ceilings has leaks because she never told me that they were leaking.  Windows and storm windows and doors are broken. The cottage has been turned into a cat house, and may have to be torn down.  The heater, refrigerator and kitchen stove were missing from the cottage, and probably sold. 

In 30 years of renting, I've never seen such damage!  My attorney and my home insurance adjuster have both said I should file a Police report, and pursue damages. Luckily, I've taken lots of photos before we tore the stained & soiled carpet out, so I am doing that today.  

Help!  

I have become a Realtor in the past 2 years, in another city 3 hours away, and I never expected this kind of damage from someone who was "buying" the house. I thought I'd solved the tenant damage problem since they had an ownership interest.  I'll never again allow any tenant to rebuff me when I feel I need to check on my property.  But, I could use some experience, strength and hope for getting through this rehab financially, and some airtight Lease & Rent-to-Own forms for the next tenants or buyers.  Because, in this shape, this property will never pass inspection for a normal loan, and it's going to take me some time to get these houses rebuilt, I will have to rent it out as soon as it's habitable, and use the rent to pay for the rehab.  Your thoughts?