Most of the time the tenants are responsible for the deposit.

I do have 1 month of his security deposit but I am not sure the condition of the house.

Only thing better would be initial deposit and then paid in full upon Certificate of Occupancy and punchlist complete.Of course, standard items should also be checked: licensed, insured, willing and able to pull all required permits, reference checks.I would also commonly avoid the cheapest bid you get.  

Our offers include clauses allowing us to do our due diligence before closing and protect Earnest Money Deposit (EMD).

You can't beat the price, either, or the interest rate on deposits.

(I guess that's what the $3K to $4K deposit is for)(3) Is it difficult to find private money @ 12% over 5 years to fund these deals?

I did not read the rules around security deposits. you may be allowed to use those funds and still file a small claims action for any remainder, but I can't imagine that it would be worth it if you have at least one month's rent in security deposit. 

Please consider this if you move forward.Additionally, you need to have a broker on payroll in illinois and three separate bank accounts with the security deposit trust account located in illinois.

You will need to provide a $5000 deposit for each property you wish to bid on. 

Sometimes it can be difficult to collect and some landlords will keep any unpaid utilities out of the security deposit, though CA is one of the trickier states to do this in.