They dropped the issue, I let her out of the lease and kept her security deposit.

First you need to have a 5% deposit ready, 2nd you have to pay full price cash on the Sale day (which is the Auction date), not only that but most banks bid a ridiculous amount and most houses are "sold" to the plaintiff (bank).So how am I supposed to buy a property if I cant fly there every week and see each and every listing, and if I bid and am lucky enough that the bank doesn't care and sells it to me for what seems a great deal (but the house could be likely torn apart) I don't even know what I am buying.

Also a lot of US states are pro tenants, that makes eviction more difficult; besides the damage deposits in C or D areas may not be enough to cover the cost of tenants trashing your place.

Can that be negotiated with Fannie & would there be a (refundable) security deposit required? 

Pursue those things first for the security deposit.

Cash for a security deposit, and additional savings to cover times when things aren't so good.

Definitely get a deposit from her and make sure it is enough to ensure she will comply with all the terms of the agreement.

Hi all,   So we finally got our former primary home, in Washington state, rented this weekend and I know enough of the Washington tenant law to know I am supposed to put their deposit in an escrow account.  

@Guka KaguDid you have a security deposit?

My wife and I used the HELOC on a property we owned for an earnest money deposit in an offer we placed for a different property but got the "daily interest accrual anxiety" if that is a thing.