Wow, that's great that you would like to help your tenants be more financially secure.

They paid the first month's rent, plus a security deposit which is saved in my business checking account which they will get back as long as the apartment is left in serviceable condition.

They dont want their names on the title in 2nd position behind the hard money lender (despite me telling them that will secure their loan), they just want to loan the money to me personally at 12% with a promissory note. 

But you might be able to secure other funding to make this deal happen.Business/personal unsecured line of credit.

Also, maximize the security deposit. 

What are my option here, I do not understand why $1400 was taking out of our security deposit for no reason.

I'm not trying to take advantage of her, but I do want to secure something before anything bad happens and the house is left to the state. 

I would try to secure private financing or get a partner, otherwise.

Talk to a securities attorney.

@Andy Mirza frankly I did not trust the party that put me on title so I secured an attorney to navigate the issue and act in my best interest.