I could have gone elsewhere to work but couldn't rent my unit legally and wouldn't be able to cover it illegally.

Two loans were taken out, but the starting bid covers only 75% of the combined loan amount.

If that is what you are talking about then I would say no, that 5% is not used for holding fees. 5% is to cover the the vacancy rate of a fully operational property. 

Am I covered for situations like this where a tenant might sue a landlord through my normal home owners policy typically?

On the search for one that covers my PITI, then brings in a nice cash flow after I leave in a few years. 

This is with conservative rent and after 10,000 in repairs which I am sure and have visited the property with a inspection will cover it. 

But if I take pictures of the evidence, I think I’ll be well covered to stand my ground.

@Jay HinrichsFor sure a title claim — either covered risk 1 (title vested other than shown on schedule A) or 2 (defect due to fraud or forgery).

Generally people in those areas have a tough time putting a substantial amount of money together to cover move in costs, so I'd be interested to know if they have problems getting tenants to bite on those requirements. 

In most states, if the tenant does not pay the rent, the landlord can use the deposit to cover the unpaid rent.