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.   

Have you looked to purchase property with an existing ADU so someone else has suffered the initial negative equity and you purchase with buyer financing?

Quote from @Glen Friedman: Chicago, IL - 17043Newark, NJ - 16588 At least they're still working on recovering the funds for the Newark one and looks like investors won't be suffering a complete loss of principal. 

When rental demand dips they suffer with placing tenants or forced to play a game with who can charge the least in the area.  

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.