Also consider all lenders will require to review your insurance when underwriting a loan and it's likely a violation of your existing loan documents to let the properties go uninsured even if they didn't require insurance escrows. 

Are you researching this yourself or asking your borrower to provide documentation to support this?

I give these threats no thought because 1) my actions are appropriate 2) i document well 3) they have yet to follow through with any of these lawsuits 4) typically their ignorance is apparent in what they are threatening to sue for. 

All of the official documents I've found so far point to the national FHA requirements as their source.

Be transparent and document everything.3.

No doubt; both of my neighbors at my vacation house got "free" roofs from guys who roam around after any storm and document that whatever storm damaged their roof - despite the fact they both had 15+ year old 3 tab asphalt shingles in the central Florida sun. 

The document you linked to is for NY State as a whole so that applies to Erie and Niagara counties.

The good news is, if you didn't do anything wrong and you have proper documentation, you don't have to do anything.

Supposedly, after signing participation agreement (I haven’t seen the documents yet), you can pay it off next day and essentially just pay 100% of the first mortgage acquisition price.

@Bryant XavierYes we provided documentation from the property manager who responded stating that the cause was the open doors and windows...didn't seem to help.