Have your  banker state on bank letterhead that you have in excess of X amount on deposit and available for immediate withdrawl.

If notification by mail is used, the 14-day period shall be deemed to start on the day the notices are deposited in the United States mail.Subd. 2.Landlord's punitive damages.

If you change the vesting to LLC without permission the lender has the right to call the loan, your fire/hazard insurance won't match, and is considered a sale so property taxes adjust up.

Upon final walk through found out 1 tenant was applying for rental assistance, this tenant never had a security deposit but the question is not about that tenant.The other tenant supposedly had a $1,000 security deposit.

He never collected any security deposit from that person smh.

There is another option to use 12/24 months bank statements and use your gross deposits to qualify. 

When I receive my rent payment each month, it’s put into my account as a single deposit.

Look at how they track tenant payments, deposits, owner payments, etc.

Would it make sense to just return their deposit in full to get them out of the house or?

I match my rent to theirs, cover my portion of the mortgage, the utilities, the rest goes into savings for repairs.