I won't even be able to get a correct letter from him to release him as the plaintiff for my property's damage hearing case now.  

Is it worth me assuming she didn't tell the owner (when I found it and told the sellers realtor it was fixed promptly), and keeping whatever it costs to fix the damages from the security deposit?

You are suffering monetary damages.

The main difference being this time the money is much more private than public so there won't be all the collateral damage. 

Do I charge them for the damages at that moment and fix it?

Hi Mike, If you have  signs of water damage - check your attic, see if your roof is leaking, or if you don't have sufficient ventilation of the roof.

Also, a good inspector should be able to determine whether there is a termite damage or not.

There are policies out there where you can buy that % down to 11%.I'd say the unrepaired damage is the driving factor here. 

I was wondering about water as the plumbing inspection failed (this is a HUD property) but really did not see any evidence of water damage/intrusion at all and I walked thru this with another agent and we looked very closely. 

Now a few days later after we took possession the other two individuals are suing us and saying they also rented from us as a "rooming house" and want six months relocation fees as well as any other damages and attorneys fees.