Late payment charges, medical expenses, unpaid water/electrical/phone, HELOC's gone awry, etc.

You claim you can’t qualify for a conventional loan now.

I would argue there is nothing owed to the tenants so their bankruptcy estate has no claim.

Whether or not you put in a claim or not, you should deal with a professional who knows how to handle mold removal.The first question I would ask of your agent is, does the company's guidelines allow them to non-renew this policy at renewal. 

Dad is still considering going after squatter in small claims for back rent, back utilities, damage to home, etc.

You file insurance claim and get bids and get it done...you never have to be here. 

At minimum, it should protect you for any recorded liens (tax, water bills) and bogus claims to ownership (aunt Sally coming out of the woodwork to claim ownership).

It may be that there are medical bills, attorney fees,  or other things that they are waiting on before they can close probate. 

@Basit Siddiqi many people on here have STR, or claim themselves as self employed investors, or expense on a schedule C, or they have LLC/SCorp etc.

Usually title issues as passed on by quit claim deeds2.