The answer might be too tear down the existing structure and the cost to do so versus existing use and structure with a restoration. 

They pay very little property tax as the home was purchased a long time ago and isn't subject to the normal rates.The question is, is there a way for them to keep their current house, pay off / refinance the existing mortgage or get another heloc in a way that would eliminate the need for the windstorm insurance, rent the house out, and get cash out to buy (mortgage) another property?

There may also be non-monetary factors to consider, such as the family members expected rate of appreciation for the property and tax considerations. 

The 1970's doesn't bother me if it doesn't bother the existing tenant who lives there.

The goal is to create a lease option wholesale deal that will require a $10,000 non-refundable deposit from a tenant buyer that will go towards the purchase price, which will be $110,000.

Could they have been shut off for non payment?

Go to google maps and look at satellite picture and 'walk' down the street and see what businesses are next to his and contact them and ask, if the business is still in existence . 

If they do not understand the market, regardless of the purchase price, you'll hard pressed to find a non-local lender to fund the deal unless they are Fannie / Freddie sponsored.

Applicant must be a non-smoker.

However to simply contact a realtor about a property that you may not be interested in working with them on, Chances are they won't entertain it unless you have built some existing rapport.