Some lenders maybe flexible in that regards but when I have a buyer in this scenario, I want encourage them to get full loan approval so once day 90 comes the lender can order the appraisal and usually close within a couple of weeks 

That's usually paid with a credit card when they start the loan process.

That being said...Is it enough to simply transfer the funds from the security deposit account to our operating account as paid rent for the next 2 months or is it necessary that I refund the money to them with a receipt, have them sign the addendum, and pay their rent themselves as usual? 

@Haley Graham usually any of the “low money down” loans require you to owner occupy it for the first year.  

That's usually the last psychological state the bulls enter just before the correction.  

I'm in your area and usually do the rehabs myself subbing out specialties.

The lunch usually has 10-15 people, and I think the happy hour averages a few more.Here is the link to today's meetup: https://www.biggerpockets.com/forums/521/topics/540299-february-okc-lunch-meet-up?

Lenders are usually very specific.

To fully cure the encroachment, you will likely have to file a new legal description for both properties and reset the boundary lines, or create new parcels with the encroached areas.All of this can be dealt with - but it's going to take time & money and most importantly, cooperation between all the parties. 

They will usually issue a check for that amount, less your deductible, right away (more or less).