The unit was flooded with four inches of water in about five minutes! 

Give em an inch, they'll take a mile. 

Just a few inches short and it totally changes the value of the home.

A good way to inch into this is partnering with a builder instead of wholesaling the deal to them.  

About an inch wide..... requiring mudding and paint over.....As mentioned, they signed a clear checklist but in going back to do the repairs, we did have to get a contractor to repair this..... and the landlord wasn't letting this pass these tenants......What have you communicated for your past vacated tenants?

A 1/2 inch PEX does not handle the same flow as 1/2 inch copper or PVC,  that is why the use of a splitter(manifold) is common in larger installations.

Alright first things first,get some solid information about the property from professionals so you know exactly what you're dealing with.Call a good general contractor and have them throughly inspect every inch of that property and have them create a itemized list of everything that is wrong and needs to be done to get this property back in top shape.It may not be as bad as you think or it could be worse,you need to know and not just guess at it from 2000 miles away.With that information in hand,call a real estate agent and discuss the current market for her property's area and give them the repair information on the property to determine how much she would likely get for it at this time(could be more or less than you think).If the amount of money she could get for it is really around 120k or more before repairs,the bank could easily approved a short sale quickly for a small loss or agree to let her make small payments over time to make up the deficit.If it is worse than that like only 90 to 100k than you need to show the bank the laundry list of problems and negotiate a short sale possibility with you or another investor buyer.If the bank knows in advance just how bad the property is before they begin the foreclosure process in full,they might be more willing to negotiate with you for a quicker short sale.

It was a 2 inch thick book that most people would think was miserable to read. 

Tons of rain had 2 inches of clear, non smelling water in the basement, which also happens to have the kitchen, bath, laundry (like i said, small).

You may have to raise the entire home above grade by 18 inches (i.e., jack up the entire house) if you will improve the house by more than 50% of its value.