If it were me, I'd probably just prepare with a sheet of notes with bullet points for each claim of damage and why I don't feel responsible for all/part of each item. 

That being said and to answer the question actually posed by your clients, there is no bullet proof protection for any asset. 

As you found, a rejected application because of your bad referral means you are stuck with the tenant.Eventually though they will only be able to rent to folks who don't screen, and those are usually the worst places who don't care about bullet holes and pests and rodents and code violations.Don't ever stop your eviction process until they are out of the property and you have keys in hand and have assessed all the damages.

I feel like I dodged a bullet here, and I am wondering if we shouldn't have seen the first floor before making the offer, or before I contacted the lawyer and had her draw up a contract?

You should also do everything you can up front to "bullet proof" the property.

IE a constant problem to YOU.To start your change in business tactics then build a strategy; read my file I uploaded off my profile, 1st paragraph at the end:  How To Buy A Bullet Proof Rental Portfolio. 

To start your tought process read the file I have linked off my profile 1st paragraph:  How to buy a bullet proof portfolio.Next search for discussions on turnkeys in Memphis.   

I am talking about store fronts with bullet holes in the front windows.

I also want to make my rentals "bullet proof" so that they hold up to wear and tear and a little abuse.

If you're looking for feedback, you may want to post the problem or some bullet pain points you're trying to solve.