I would judge based on the number of questions / uncertainties you seem to exhibit about the situation - that you are unclear about the Landlord Tenant Laws where this property is located. 

If I were in the situation I would hopefully have used a Deposit to Hold agreement and I would keep the deposit, cut ties with the already not-understanding tenant, and search for someone who exhibits the qualities I value in a tenant (namely their Mindset).You have either a crystal clear case to do that, or a fairly clear case (depending on whether or not you used a deposit to hold agreement). 

Purchasing bank owned properties allows for conventional lending and due diligence and can exhibit good value with no more risk than any other type of property, but perhaps more work.Buying at foreclosure auctions, on the other hand, is perhaps one of the riskiest ways to buy property.  

There is a great article that the Journal of Accountancy published which has an Exhibit of 2 circle diagrams that they use to demonstrate the relationship between RE professional time and material participation time as well as the 7 tests to meet material participation. 

As Exhibit 1 shows, that was up from 2.5% in 2017.