I got the pictures of the floor support in the crawl space through inspection and it looked little dicey to me.

If company policy of the appraiser or the bank dictates that basements are of lesser value, I get it, but they didn't give it lesser value, they just ignored that area completely and compared it to 1100 sq. ft. ranches on crawl spaces.

When we looked at the unit before buying we noticed roaches EVERYWHERE, alive crawling on the walls dead ones all over the floor, and the tenants don't seem to live clean, we figured they caused the roach problem. 

Fresh paint, floors/carpet, plumbing repairs, electrical repairs, soffit repair, vapor barrier in crawl space, all sorts of stuff!

Searching the web I've read that banks want you to use it on the primary home, the one the heloc is on, to update it and increase the value.

Flooding crawl space.

Get contact information from the agent or look at the policy for information on where to submit a claim or check the underwriter's web site for information on how to submit a claim. 

You truly should be hiring a professional to work with you and guide you instead of relying on a web forum. 

Things have slowed down to a crawl here in Upstate New York.

Nationwide web database of online information, digital lock boxes, electronic signing are all used by agents today.