Deposit Problem

[David Rott]

Thank you for reading. I only have 1 house, it is the upper unit in question. On Sept. 2nd I had a guy sign a lease for sept 2012 - aug 2013. A girlfriend that was with him gave me a check for $400 toward the $753 first month and $753 security that was due at lease signing. Ten days later he gave me a check for $200 and stated he would have the rest in October. At lease signing he stated he was retired from GM and had two incomes but as it turns out he has 32 judgements against him just in the county I live in.
I have not given him the keys yet but he placed things in the garage. I was over there finishing work on the lower units bathroom and he showed up and asked for the keys because he was concerned his couch cannot fit in the upper unit due to it having an "illegal" door. The door is 28" wide but I did some reasearch and it looks as though this is ok since the house was built in 1890. He was adamant about trying to get his couch in there. I refused until I received the full amount from him. I left and my lower tenant stated the guy was in the yard for 3 hours calling people asking for advice on the illegal door and ranting that his GF got him in this mess.
I called him the next morning sept 16, and explained that this will not work out and he agreed to move his things out of the garage if I met him there the next day. I had planned to return the $600 I had collected thus far and contacted the GF since $400 she had supplied. (GF was not renting, just the BF). The GF now tells me the BF and her broke up and he is being evicted from his current apt. (current apt. cannot release info to me re: this), and he was trying to get into my apt. as cheap as poss. in an attempt to squat. He has 32 enteries in the county website for liens and judgements for debts and back taxes. He has now stated he will sue me for his $600 plus "lost wages".
So with all this in mind ... the question, do I return his $600 to him because it was me ending the deal, or does the fact that he had no ability to pay me come into it? Do I return $200 to him and $400 to GF? Do I simply wait for a court proceeding and make a case that I lost use of the apt for Sept. now and move to keep the $600 or $753? GF says she will testify in my behalf should it come to that (drama)(yes it is my mistake for not vetting the guy out).
I have owned the property since 1991 and have not run into problems. I only consider court because this guy was extremely confrontational, aggessive and a scammer and I hope to maybe slow him down from pulling this crap in the future.