Make sure you know principals, are they registered in their state and check their credentials/lawsuits against them etc.

I do not yet know his situation, be it divorce, lawsuit, etc.

You can't force someone to buy a property from you via lawsuit, not to mention the amount of money you'll ultimately spend on legal fees makes it not worth it.

Asset protection,Reside in CA, and read about RE investors having the option to start a LLC in NV that's within a trust and also purchase an umbrella personal liability insurance policy (upwards of a $1m - 2m+), to give aspiring RE Investor the proper business structure, security and protection in case of the inevitable lawsuit and/or other costs of doing business. 

I know that the cashed check would serve as proof that he received it, but I can't ignore the possibility that he will disagree with the deductions and refuse to cash the check, leaving me exposed to a lawsuit for failure to return the deposit timely.What advice can you offer on what my next course of action should be?

The house also has an in-law suite that I will be able to rent out for around $1,100 – 1,200 per month.The house is less than 1 mile from Towson University which makes it a good back up if I can’t sell to just rent the entire house out for over $3,000 per month.

Also called an In-Law suite sometimes or Au Pair suite.

Unless you can find a property with a garage apartment or separate mother-in-law suite, I would go with "happy wife, happy life" and skip that idea.  4. 

I just saw one that actually had a mother in law suite that would be a very attractive option.  

In some cases  if the taxes are not escrowed, the lender will pay them at some point if there are lawsuits or tax liens.