I have contacts in the Midwest that make that area quite attractive for me. 

I have the cash to do the rehab now, I plan to contact the renter this week and work something out with him. 

Partial rent to "compensate" for the sewer issue is not an optionThat's your angle...As soon as threats of lawsuits fly, then hire a lawyer and let them do their job...no more contact with them except through the lawyer.You aren't going to WIN this situation...best you can do it stem the $$ damage and move on...fix it and sell it off..... lesson learned

@Paul SchaefleI would start by contacting the village and or Hall and see how they regulate and if they do regulate short-term rentals.

If they have not confirmed an hour prior to their appointment, I send this text to their phone (which was required as part of their contact information I required in the response to my ad):As I had requested in my email, you have not yet confirmed your apartment showing for this evening, scheduled for 7:00pm.

Please contact me to learn more.

I’m trying to contact the owners, because they don’t live there.

You need to speak with the insurance company directly to see exactly what their policy covers.Here's a good overview.I recommend you contact at least three different carriers to see the differences.

I plan to contact my lawyer to discuss estate planning very soon.Something I’ve done for myself and my family is I have a diary (notebook) for all my properties.

Contact me off forum if you would like to discuss.