There was a fire and the house burned to the ground.

Do they pay rent on time every month, if not - evict.

I don't care about someone's color, religion, sexual proclivities, their stance on green energy, political affiliation, etc.I want people that pay rent on time, take care of the property, and communicate when needed.

I can see why the ins company is dancing around and not paying 

Since you bought this for $5k less than the appraised value, I don't think there would be a big enough jump in adding value where you can do a cash-out refinance, and you would likely be bringing money to the table to pay off the HELOC with a standard refinance. 

After about 2 months of waiting (and paying mortgage), I finally rented it out for $1000!

And this works great, when it works, but as soon as the place goes vacant, or rents drop, or a major repair is needed, you still need to pay your debts, so the risks to your cash flow are increased.

To me, this is using security deposit to pay for repairs DURING a lease (because the tenants aren't moving any time soon). 

These little owls literally dig into the ground to make burrows for shelter. 

Typically, any lease violation can be grounds for eviction so long as your willing to go through the legal cost and process to follow through with it.