For example, if a tenants dog bites a visitor and that visitor sues both him and you (or just you) the tenants liability insurance will provide defense for both you and pay settlements up to his limits. 

They do have income, but credit was damaged due to medical problems which resulted in a settlement, this providing them with the ability to pay a substantial amount in advance (19K).

I think the agent is being short sited in not negotiating a settlement to satisfy both sides of this. 

Then I'd get them to sign the agreement, and make sure it says it's a settlement agreement and the tenant is waiving any rights to the normal security deposit timelines, etc., to avoid eviction and a court record, etc.

Here is a case from the HUD website from 2013 for a Virginia company that had to pay a $82,500 settlement because they refused to rent to a Hispanic woman who didn't speak English.The Fair Housing Act prohibits discrimination in the rental of housing on the basis of national origin.

Does the bond she paid go to you as part of the settlement if you win?

dont go to settlement until the house is empty , let the seller deal with it 

@Steve Babiak Account ClosedDepending on the state law, Mechanics Liens, do not have to be recorded, Neither do State Welfare Liens, Nursing Home Liens, State Tax Leins, and sometimes Federal Tax Liens are only recorded ta the Federal Courthouse not the local county courthouse.I worked in an Law office and asked the owner, who had 5 title abstractors on staff for real estate settlement searches, if he would allow me to tag along when the searches were at the courthouse searching. 

If no settlement is reached at that mandatory mediation, DFEH could choose to file suit.  

This action is deliberate bad faith because it limits the escrowed amount agreed contractually and intended as security against damages.Good luck collecting it, because even if you win the judgement there's no way to enforce payment except through credit reporting and the possibility of settlement to clear the reported bad debt.