After pm forwarded my case (tenant did not pay rent) to collection agency, the judgement claim balance is $7,569.33.

You likely won't be able to offset the rental loss with your W-2 income unless you can claim real estate professional status or operate it as a STR and self-manage it.The answer won't change even if you own the property inside of an LLC.Best of luck.

Once all are approved, then you can submit the claim for a refund. 

You can go to small claims court, but you are unlikely to see the money. 

I was very polite and empathetic about his situation which I told him he could contact auto or rental insurance to file a claim.

Tenant is claiming that Washington State law says I cannot keep it unless it is for damages.

The townhome has appreciated in value to about $350k (per Zillow and RedFin) over the few years I’ve owned it, so estimating $150k in equity, about 45:55 self to bank equity ownership.The townhome now has a leak that has lingered and gotten worse over the few months waiting for an insurance claim decision, ultimately being denied coverage so now I’m stuck with having to cover the entire expense.I’m also considering selling the property once it is fixed so I can take the funds from this 1 single family property in Houston to apply towards funding a possible multi-family property in Austin, TX.The quotes to fix are around $15k-$20k, which I’m not excited to just pay out of pocket, nor do I think I really can at this point in time.

Even though I claim in long term returns will be similar and the effort will be less in the high class area, virtually everyone starts in the better cash flow areas (working class areas). 

Despite our genuine understanding and support for your situation surrounding the passing of your father, the claims made do not align with the assistance we provided.Our commitment remains steadfast in continually improving our methods, curriculum, and student support.

I finally received a demand letter from a "nonprofit attorney" representing the tenant, claiming that the tenant was living in uninhabitable conditions—typical for a non-paying tenant, I guess—and now she wants to "renegotiate" the rent and keep living in the same space.She has been filing complaints with various government departments, but all the cases were minor and have been closed.