We then added a wall to close off the water heater into a closet and finished drywalling the walls and ceilings.Are we totally screwed because we did not get permits to begin with?

Do they have to cut through the cabinets or open up the wall to get to it?

If she files (does she have the $5000 retainer to start a war?) 

Hi Rebecca,With contractors --if you don't know how to spec a job there will be miscommunication and you will feel burned. ie, why was the wall left open after the electrician put in a new wire--why did the plumber leave all of the old fixtures in the hallway and then just bolt out the door, never to return and never to return your phone calls? 

If the walls are leaning then it gets costly.

We:Refinished the kitchen cabinets with a modern gray, replaced hardwarePainted the kitchen and bathroomAdded vanity and new faucet in bathroom, replacing a wall-mounted porcelain sinkRefinished the bathtub and shower surroundThe resulting unit was better than anything else in this working class neighborhood, matching the quality of nearby slightly more expensive town center (mall, restaurants, etc.) neighborhoods. 

Just because a property has four walls does not necessarily make it a contender as a rental property.I have seen more bad decisions in this line of thinking by home owners that I can count.

You never know what you will find once you start opening walls, etc. 

Things like taking out walls and changing floor plan are the kind of projects that will get you in over your head as a beginner and/or someone with a hesitant partner.all that aside, there's another important element to what you said that I want to call out...

In my state, calling something a deposit (pet deposit) is not the best option because the property owner needs to document pet damage to retain the pet deposit.