Offer him some part of your profit or pay his security deposit to move into an apartment; something like that.

No proof that a security deposit was paid.

As for the down payment, I was considering having my business partner deposit the a small portion of monies into escrow, but you are claiming it needs to be seasoned; possibly 2 months, like residential loans.Also, I was unaware that on commercial loans a reserve would be necessary.I'm aware, on residential investment properties, a 3 month reserve on existing loans is required, and a few months on the subject property.

Personally, as an end buyer, I wouldn't have a problem with it because if I agree to buy the house then it really doesn't matter if I put up a $500 deposit or a $5000 deposit because I know I'm going to be paying whatever the balance is in a few weeks. 

Some specifics:*We were required to put down $12k in option deposit monies and also an additional $7500 for security deposit and some improvements.  

As for the court house steps, usually you need 5-10% cash deposit at the moment of the bid, with the balance due 24 hours , or whenever (some places 4:00 that day, some next day, some 100% at the time of the bid).  

If I give him back his security deposit then I'm down a security deposit, 1 month rent, and 1/2 month rent. 

would advertise it for lease with enuf rent & deposit required to get them out of tax jam.if tax is loooong overdue, then one has to wonder even if they are bailed out, its likely to be allowed to go to default all over again, so yea, in that case, quick sell it and get out of it since its supposed to be for profit but obviously its a loss in their scenario.

30+ SFH rentals, $30+/month in rental deposits, approx. $10K/month in cashflow. 

Then she moved out in mid-January and expected us to prorate her January rent and deduct it from the security deposit.