Also, key Due Diligence items.  

- It gives you peace of mind to know that should a loss occur, having funds readily available to replace lost items will reduce the strain on your relationships.- It’s very inexpensive and easy to obtain a policy.

First check your laws to see if you have to return the money within 30 days or send them an itemized bill with the balance of the deposit within 30 days.Stick to the facts in court because his temper and the changes in their story will work against them and land them in trouble as it will appear they are not being honest. 

The items you'll need to track are:Date of ExpenditureVendor Name/Tenant NameAmountCategory of Expense (look at a Schedule E to get this)/ or Revenue Type (Rent, Deposit, Utility Reimb, etc)Property (for when you have multiple properties.Put it in a nice column format like this:Date                     Vendor/Tenant                Amount                      Category                  Property1/1/18                   Joe Smith                         $1500.00                     Rent                           123 Main Street1/5/18                  Home Depot                   - $20.00                        Repairs                       567 Oak StreetSo that when you share your spreadsheet, they can filter for what they want. 

Not telling you what to do, but food for thought...

Are you saying that you wouldn't start Demo until you have done all of the Exterior items on this list? 

And my bet is the underlying reason for such, that's the real item that matters.  

This occurred long before automated advance electronic payments.Interestingly, I never rented to nuns before, I learned that this nunnery doesn't issue paychecks, as the convent provide jobs, housing as well as food at the convent.

Might be a good idea to check the building codes in your area and see if this is an item that has been set down in law.

I wish I had some list or workflow (granted one that can be manipulated due to differences in properties) that would include all of these possible items that need to be addressed or a better system in handling all of the different inflection points of a rehab.