House was severely fire damaged and subsequently deemed uninhabitable and demo'd by the city along with the solar panels.

-he pays $550 of the $930 mortgage, and half of the utilities, which are not split, and are in my name. am I overreacting, or do I need to do some damage control on the tax front?

It just a simply "guarantee" that they will cover guest caused damage.

Keep the money for the days it was vacant (ie if you rent it Aug 1, then you keep 1 month's rent) and any damage that you had to repair. 

Block the garage as well.

Is market like Texas where they often have soil/foundation issues, or like MN/the Midwest where the asphalt shingles might have hail damage?

For Section 8, if they damage your property they will LOSE their Section 8 money.  

If you intend to hook it up it would be smart to make sure it is not blocked either by tree roots or crushed at some point underneath the lawn or someone poured cement down it or something like that.

What are your thoughts on blocking off the double doors and using it as a separate, private unit.

Especially when they are going into foreclosure and fear their credit being damaged.