No defense.

That includes legal defense fees to be paid by their insurance carrier.

There may be some laches defenses, but the law is supposed to be fair. 

Since your best defense is good tenant screening, instead of writing confusing leases that contain stuff you can sue over  - which of course is an expensive PITA - then the simpler, the better in my opinion.Not sure if Nolo has contracts for where your property is, but you can check them out here:http://store.nolo.com/products/leases/residentialTheir books are great, too.  

So, without consulting an attorney, I don't intend to submit a form to receive Option 1 benefits and will automatically receive option 2 benefits.The 2nd question I have is about the compound breach of our lease agreement. 

Honestly this is all new to me and I got defensive when I should have immediately seen it for what it was.Thanks for the feedback. 

4 - If properties have been increasing in value over a period of time, they will always increase at the same rate...in all areas.5 - Depending on events that you have no control over isn't speculating = banking on appreciation.6 - Depending on a tenant to make a payment the next month, when they have been doing so for the last (fill in a number here) months is speculating.7 - The single line gains seen from imprisoned virtual value (equity), is better than the compounded gains seen from usable real value (cash).

Mutual mistake of fact is a really interesting defense here, because the seller is marketing the property as being comped to these duplexes and you believed the property is a good comp to these duplexes, but it's also true that it isn't a good comp with the selections. 

I would not hire a defense attorney (unless is free consultation) until you get an actual summons by the court, because until then it can all be threats and just talk.

IIn most states as long as the tenant is 1% liable for the claim his insurance will take care of the defense costs and pay claims up to his limit.