In Illinois, attorney fees are not recoverable for negligence cases.  

But seeing my parents sort of changes that perspective for me since it was almost like they sacrificed that negligible cash flow for a promising guaranteed return.

If it's normal wear and tear then you're obviously responsible, but if any repairs are the result of damage due to negligence, then the tenant should be charged.

Having an LLC will not protect you if you are criminal, or negligent.

Anyone know if I have a chance at going after the inspector for negligence on this item......

Some think that you can protect your free and clear assets from lawsuits with an LLC, but if you are negligent, even that may not protect you.

I have been negligent in my area on this topic, we had this pretty well exposed around here and some new shysters are popping up, might be time to go back out on a slash and burn mission again.

My contractor said the damage now, is negligible and should be under a grand to fix.

A lot of people complain about the PMI on those, but it's negligible and would be even less than the payment on your no interest loan, particularly for properties in this price point. 

You have documents showing that you tried fixing it, so they can't sue for negligence, which is what it sounds like they are wanting to do.