I'd consider them 5-star guests if they didn't damage anything, were good communicators, and followed the house rules including arrival & departure on time / as expected and having the number of people in their party that they said they would.

One urban legend is that it was created to give neighbors leverage for loud student party houses or students parking all over the street.

You got yourself into it and can certainly get yourself out of it.Trim the fat...If you're spending too much of your income and falling down on your obligations, the party is over.

While you may not be that kind of LL, he is probably very worried and the request for deposit most likely insulted him  While that is not your “issue”, it does help IMO, to understand motivation of other parties when conflict arises. 

One big issue standing in my way is he has a mortgage on the property and I have not really seen the process of a lease option being done with a house that has an existing mortgage.

Neither the BC assessment document, nor either parties’ emotions, are tied to a current true market value.

Also, it's hard for banks to sell to individuals off market because it shows favoritism (it is favoritism) so to reduce liability/impartiality and increase transparency banks almost always go through a 3rd party broker. 

You're the party not complying with the agreement.

It will just be used for dining on one side, standing on the other.  

. $1600 for everything (two pipes even- the expensive part is the excavating, you can dig it up yourself if you need cheap and have time and energy on your hands).