Under no circumstances should you apologize , that's enabling behavior which facilitates their continued disfunction.I'm going to say Berkeley rivals SF and Portland in the professionally offended dept.

Does there have to a situation where the landlord does not have insurance, or a serious case of neglect or reckless behavior for properties to be taken? 

From what I understand the banks allowing 0% down and Interest only loans as well as other risky behavior was a major contributing factor to the bubble.

But I like your idea of an incentive to use the system- carrot rather than stick - because the late fee disincentive which she has already accrued doesn't seem to change over her behavior. 

Originally posted by @Max Tanenbaum:I always go back and forth on this debate:On one side if you fix every issue that the tenants cause and don't charge them for, you encourage repeat behavior....On the other hand, if you bill them for it, you discourage them from reporting damages to you and you could end up with much bigger problems down the road that could have been cheaply/easily addressed before they blew out of proportion.I usually take care of the issues as they come up and without charging them, but require the tenant to be there so I can educate them on 1. how to prevent this from happening again 2. how to take care of it without me if it does happen again (sometimes) and 3. that i will be charging them the next time (if the issue is caused by tenant).If the cost of the repair is more significant (over $100) or I believe that the issue is caused by tenant negligence I will bill them for it, sometimes split the cost with them depending on the situation.My properties are leveraged so a month of vacancy hurts me a lot more than a repair!

Inspections are also triggered by other bad behavior like being late on rent more than once or an unkempt yard or noise complaints.We always inspect 90 days prior to lease termination.

This kind of explained the weird behavior.