In my opinion it would be best to retain an attorney Is this your only multifamily? 

So, if your state allows, retain the deposit, send the proper notification (if required) to tenant's forwarding address, and move on to find new tenants that (hopefully) will be better. 

A portfolio lender can retain ownership, but subcontract the servicing.

We have started to allow tenants retain utilities in our name but we have wondered whether the amount we add on for utilities should be counted as part of the monthly rent, especially for reasons of aligning with the security deposit.

Common fees will include a set-up fee, leasing fee for each turnover or a lease renewal fee, marking up maintenance, retaining late fees, and more.

I want them to feel at home but at the end of a day this isn't a customer that will be retained and the less work for turnover the better. 

The current tenants signed a 2 year lease and plan on staying long term (they asked for a 3 year lease but wanted a discount), so I see it as a good way to retain good tenants. 

And regarding the Title for the property you're buying, the Lender you have the mortgage with will have put themselves in first position (thus retaining control over the Title), so that if everything goes belly up, so your folks for example, will not get any proceeds of the sale of your foreclosed property until all the Bank's debt is covered!

Would that course of action be a reaction out of emotion or one that would ensure you retain a higher net return?

And, in most cases, even if they don't redeem, the original owner can retain possession of the property for at least a year after the tax sale until the tax deed buyer forecloses their redemption rights.