Yes, it is a tricky topic, and I'm no copyright attorney, but I've sold my digital art and photos online and off (and had my copyrights stolen). Here are my thoughts on your question:
First of all, you're not intending to make money from the images. You're restoring them for the people who own them for personal use. That's a biggie, whether or not you intend to profit from someone else's work or to claim it as your own work.
Secondly, if the photographer has gone out of business, I'm doubting he or she will send the copyright police to your door.
If I owned them, I'd scan them to my computer and PhotoShop the watermarks away, then reprint them and use as you suggested, but if you are not capable of doing it yourself, you may not find a digital artist willing to alter someone else's photos, (I wouldn't) so that might be your problem, finding someone willing to do it for you. Hopefully you have family members who are proficient at PhotoShop. As for whether the photographer himself is responsible for removing the watermarks, that's probably an issue for small claims court.
That's my 2 cents worth. Hope it helps.