We got close to the contract closing date so sent them an extension request (did not have to pay to extend, but sent PoF) and they obliged.

They should be penalized for not getting out on time, perhaps go stay in an extended stay with their stuff in storage (or pay for the incoming tenant to do so).  

He also said seller will extend the length of the LC.

Namely knob and tube wiring, which is common in the area.Also, the state of Indiana requires an electrical upgrade from 100amp breakers to 200amp if the property has been vacant and the electricity shut off for an extended period of time.Not a whole hell of a lot going on in New Castle these days.  

At the top, create a sort of capital, with a simple crown molding that extends slightly past the architrave.

Price cuts and no offers only extends DOM. 

So, I'm thinking the way I should go about this whole process is to create an addendum extending the contract term by 45 days, but allow the inspection period to remain the same, request a down payment from the buyer of $1,000, and stipulate that the seller has to provide the 30 day notice for the tennant to vacate after the inspection period has ended.  

Unfortunately, our lender would not extend us financing on this home due to its condition.  

To what extend do companies who service loans get involved in collecting late payments, etc?

I would think it is a viable option to consider as long as in moderation and not over extending yourself.