You would issue a 1099C to the former tenant for the amount of the "damage" you suffered in lost rents and unreimbursed property damages when you are ready to forgive the debt.This makes the cancelled debt income to the former tenant and taxable income on the former tenant's tax return.This does not create income for you, nor is the lost rent deductible.on your tax return.

That seriously appears as if the tenant suffered from some sort of phobia or manic illness.

The idea that you are only being reimbursed or being made whole for damages is more applicable for pain and suffering in personal injury suits.   

Sure, I can take longer but also don't want to suffer from analysis/paralysis so the deadline is more "self imposed".

You will not suffer any issue of liability in reporting such issues, facts that are true, without slander.

I decided to keep adjusting independently and last year in April a large bank across the street from city hall in Chicago suffered a fire that ended up doing millions of dollars in property damage and I was asked to handle it.

There have been many cases where uninsured workmen suffer severe injuries and successfully sued the property owner.As always, seek professional legal advice.

You should probably hire an attorney and squash this right now.If it were me, I would offer to let them go or stay and suffer the consequences.

You are correct, we suffer from damp basements in this area and without proper preventative measures and regular maintenance, almost all basements are wet to a concerning level. 

We have plenty of great success stories, but we also suffer many failures!