It shows evidence of past termite damage with no professional treatment.

Whats the damage?

This was not to be the case as I acted as my own GC. 1st the problems with the city,then I had some physical problems and everything got out of wack.

Just deduct it out of the payments.But I have to believe the lender will snap to when the seller's attorney sends them a letter stating they will be sued for damages if they fail to provide the payoff letter and the sale falls through.If the request for a payoff letter was put in writing, I believe the lender has a set number of days to provide it or else they can be in violation of the law.

Termite damage is not usually covered by insurance. 

I could be wrong on my recollection/knowledge of the set up, but I believe her very physically handicapped aunt was the official section 8 tenant, and the niece was a "guest" who was not supposed to be staying there.  

That sounds like WAY too much brain damage for me.  

what was the damage? 

I currently invest in Fire Damage properties, and other distressed related real estate. 

That said, we certainly do not want to get too far into the existential, nobody needs brain damage.