I didn't have a specific clause in the lease about dog poop, but the lease did state that I would charge $100/hr for any maintenance that was due to tenant negligence.

I am not liable if I am not negligent.

It's a very negligent game your playing there assuming persons in little to no financial viability will pay rent simply because it's the rent. 

It may not be negligence at all. 

Tenant also agrees to the following:-All drains, waste pipes, and plumbing are accepted as clear by Tenant at the time of occupancy, and any material blocking them after occupancy shall be repaired at Landlord’s cost, unless determined by repair person that such blockage occurred during the time Tenant controlled the Premises and due to some fault or negligence of Tenant, specifically excluding blockages caused by roots or backups from the street.

We feel like their negligence contributed to the situation and they're going to get nothing otherwise (if the city condemns/demolishes the homes), but they insist on the full amount.

I recoup my insurance i front and my fee.. the fee is all in points and interest there is no monthly payment is all on accrual.. this allows this client to do 3 to 5 deals a month with me. this was a good one they are not all 50k profits but most are 15 to 35k each all with ZERO money out other than EMD which is negligable like 500.00 bucks and utls.. this is how you use a capital partner to scale.. 

For illustration purposes, you hire a snow removal company, they are ultimately negligent and don't perform the services they contracted and there is a slip and fall incident.

However, I always caution that, if you are using the LLC as cover for being negligent in providing safe accommodations, it will not protect you.

But it is EXTREMELY negligent for a PM to give legal advice on FHA if they dont understand it.