If she was deliberately causing sewage back-ups, she had a plan regarding getting out of paying rent, etc., like she's done this before.  

Or expect to pay them all, and expect the absolute worst case scenario - where they deliberately find a bad tenant and charge you a fee for doing so, then they charge you fees for dealing with all of the problems with that tenant, and they charge you for a ton of repairs that weren't needed or were overpriced, then they charge you fees to get rid of the tenant, then they charge you fees to find another bad tenant - and then when you decide to fire them, they charge you a fee to fire them.If all of that sounds like fun and a smart business decision and costs you're ready to part with, and can still make a profit that you're happy with....then hire a PM.Or, manage your own properties and stay in control and keep all of your profits.  

That can go badly, and then cars might start getting keyed or they deliberately make more noise to annoy the complainer or whatever.  

And the PM played into the tenant's drama queen attitude, and when we (I became involved at this point) told them there would be no large sewer job and they were being fired - they deliberately freaked out the tenant telling them that the place was uninhabitable, trying to get the tenant to force my daughter into doing the sewer job.I went down and talked to them.

As far as I know, unless it's an actual insurance claim where the insurance company would use their own attorneys - like fighting a claim on your behalf against a tenant who deliberately set a fire, that sort of thing - you'd have to have separate legal insurance, which I don't think would be cost-effective to buy for a landlord.

My house has a small mortgage, which we are paying off with all deliberate speed. 

I think the difference is accidental (eg broken pipe) vs deliberate (eg a hole in the wall).  

I would bet you that they even dug out the lease, saw the clause, and decided deliberately to go with the "easier to get forgiveness than permission" angle.You are not a bad guy for saying they have to go along with the terms they agreed to.And if your lease says they had to maintain the yard, unless that included killing it completely with astro-turf, that is also a major violation.These guys "used to be" great tenants.  

He deliberately didn't put her and the kids on the application for a reason,this was no accident.Don't give her tenants rights by letting her move in,you'll go through financial hell to get rid of her!!!

Ignore all of her arguments and attempts to discuss any of it.At the very beginning, for the camera, in front of the tenant,  I would say that because the tenant has threatened to not hand over the keys unless you immediately turn over her security deposit in cash, that you are deliberately not engaging in any arguments with the tenant, that you brought a witness, and you are putting everything in writing and also saying out loud what you have written down.