Do you have any prior experience in fix/flipping?

If they have not and are “threatening a lawsuit”, that is very different thing.I would still notify insurance that a prior tenant claimed they were injured on X date.

Unknown contact detail of prior owner.

@Salvador Covarrubias I support the above comments, any time an appraisal comes back with subject to or listing deferred maintenance, the lender will require those items to be remedied or fixed prior to closing.

The two-out-of-five-year rule states that an owner must have owned the property that is being sold for at least two years (24 months) in the five years prior to the sale.

Then once things are dried out, you can work with your contractor to continue with your prior plan for renovation and also add in repairs from water damage.

A good  real estate attorney should look over the offer and all paperwork prior to signatures.I  do not know one but hopefully someone on this site will have one. 

Prior to the deduction for donations, your tax liability is $28k.

Not sure on legality or if Section 8 even allows these type of additional charges in their agreement, but my lease states no guest longer than 7 consecutive days or total of 14 days in any 12-month period without prior written consent of landlord.  

Both conversations are going to provide you with a better understanding of the need and requirements prior to getting too far down the road with negotiating a purchase agreement with a property owner.