Be just but stern.   

[If those two things don't come to pass as expected - you've been warned!]

by not being stern and acting by the letter of the law, tenants will see you soft and further *attempt* to take advantage of you.Don't let them do that. once you put your foot down, they know they can't stretch things, and have to let "other" payments slide, but not the rent.Counter to intuition, this won't make them leave, it will make them respect you for enforcing the terms of the contract.FYI for those offended: I'm a hobby landlord turning pro. :) 

It looks like they have already been warned by the neighbors. 

I know that personally I'm basically screwed, but I'd like to find a way to warn others and/or shut his scam down.

I've never received a warning like this and I'm wondering how seriously I need to take it?

- Major warning signs? 

He has warned agent to not be surprised if it does not appraise high enough due to no comps (small town).

----This summer I had to do some training and all the local seasoned realtors were warning that the market is going to slow in the next year - state wide, not just local. 

We also file (for all evicted tenants) with credit bureaus and often record the judgments at the county level.No, we are not being mean or trying to hurt anyone; we are trying to warn and protect others against bad tenants.