This should have been sorted out during due diligence, seems the seller took advantage of you being new.I have seen sales contracts in some states don't explicitly spell out security deposit transfer at close (just common practice done by all involved), so review the contract line by line and see if any mention of security deposit. 

I recommend reading BP's intro to REI guide, it spells out alot of financing types and you can research from there.

Unfortunately, it does not spell out how to handle the situation.   

Lessons Learned: Never pay a contractor/handyman until the job is completely finished, never sublease (subs don't care about the property/damages), expect more repairs than originally intended on the first deal, people need things spelled out to them, don't get emotional when talking with tenants and never let on that it is your first time (they will try to take advantage) Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Lessons Learned: Never pay a contractor/handyman until the job is completely finished, never sublease (subs don't care about the property/damages), expect more repairs than originally intended on the first deal, people need things spelled out to them, don't get emotional when talking with tenants and never let on that it is your first time (they will try to take advantage) Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Also, make sure it is spelled out that any option consideration MAY be credited to the sale price but is in no way a down payment.

@Nina Hayden I believe I have an idea of where you're going but I'm new to all this so you're probably going to have to spell it out for me.

Make sure everything is spelled out as to how it will work and have it signed.

Rent is due on the 1st by 11:59pm as spelled out in the lease. 

Inherited tenants usually spell trouble, in this case it's even one level worse, because they are the former home owner.