On the practical side, some tenants that wanted animals but can't have them per their lease, and tenants who wanted to live in an animal-free building, may be angry but being angry is not actionable.

We take actions, but still?

Having a face to face conversation often seems like the best way to share what might be bad news to people. 

Hi @Lauren Alpert - I'd say your actions should be based off of a few things.

She threatened legal action and I know I'm in the right there but what/how do I prepare a letter to let her know her security deposit will not be returned because of unpaid rent?

Correct me if I'm off here but sounds like a better plan of action would be to bring my equity to the table to buy a turnkey property with some decent cash flow?

Is there any legal action I can do or is there anything I can do at all? 

I realize you have never been through this before, so my best advice is do not believe anything people say, only believe actions.

The good news is you could still qualify commercial, just not conventional as laid out in this post.  

What is my strongest course of action to obtain take-out financing?