If you don't think it will fly, tell them you will reimburse their selling agent commission and/or closing costs when they sell.

You just have to come up with the funds for each stage of the renovation which they reimburse you for. 

Generally, the hard money covers 80-90% of the purchase price, you can roll in the closing costs and get reimbursed for the rehab money after inspection on a draw schedule.  

Now Property Manager says that they have just withdrawn funds from his account and I need to reimburse him the rents that were paid.  

They are family and if they loaned it to you it was more on a personal level and believe in time you will reimburse them.Also your success is bigger and more important than the money they gave you.Just my thoughts, hypothetically speaking

Would let him know that any ethical-moral obligation I felt to let him retrieve his stuff from his mother's place went out the window when he opened up a meth lab in there and that he may retrieve his effects, under supervision, after he has reimbursed you for lost rent and the cost of rehabilitating the unit.

So If a tenant then ask for reimbursement, we tell them that their renters insurance will cover the cost (whether they actually have it or not isnt our problem).

If the PMC actually did the work, they may have a right to file a mechanics lien but if they were only an agent for you, then they would likely need to bring an action for breach of your property management contract (i.e. perhaps on the basis that they advanced funds for the work for which they are entitled to reimbursement).

I assume the filing costs are 100% reimbursed by the tenant when they pay late each month.

That includes purchase price, architect fees, structural and MEP plans, permitting, construction and a $40,000 reimbursement from the city for developing downtown.