They have a duty to their shareholders/members to maximize recovery and minimize loss and not exposing the property (REO) to the open market would be negligent in my experience.Maybe you mean working with the owners through their agent or, maybe you mean working with the bank through their agent after the foreclosure.

It is EXTREMELY important not to be negligent if you are going to do that.

2) are they responsible for the damage due to negligence?

2) are they responsible for the damage due to negligence?

Probably a negligible amount. 

In most states you cannot contract yourself out of a dangerous condition or negligence -- wasps are dangerous along with other pests and vermin.Rather than charging the tenants, I would suggest teaching them methods of prevention.

Or am I legally able to shut the unit off from the outside since they expressed the intent to be negligent.. 

Liability covers losses like leaving candles burning, house burned down because of their negligence, etc....Water in the basement not due to flood is most often an excluded risk, whether you are a tenant or a homeowner or a landlord. 

Insurance companies, and this includes umbrella policies, will deny or challenge your claim especially if the damage / claim is high and based on negligence or any fault of your's, READ your small print and don't think you are so good at landlording that accidents won't happen.

But the lease specifies she bears the responsibility for anything that is due to her negligence.