From the 4684 instructions:

Personal casualty and theft losses of
an individual sustained in a tax year beginning
after 2017 are deductible only to the extent
they're attributable to a federally declared
disaster. 

So you can't use this. Even if you could, there's likely no basis as discussed in the link Bob provided.

Go to irs.gov and lookup Offer in Compromise. The offer could be $1.

You said their only income is Social Security. Do they own property? They could wait out the 10 years after assessment for IRS to collect. Wat could IRS collect? Note: they can fgarnish Social Security - 15% I think.

Are your clients in a position to shoulder legal fees for their parents? 

Or can the parents find a law school legal clinic, or a community based organization to help them? It seems the bank is at fault here (in addition to the granddaughter).