I purchased an iphone 5s from t-mobile from a guy from craigslist?

So basically after about four months of using my iphone 5s without no problems at all, I wake up one day and it says no servive. So I go to T-Mobile and they said it was reported stolen. So what are my options? Don't say sell it because I don't want to scam other people. Can I have it unlocked and use it on another carrier?

The way to handle that when buying on craigslist is to have them restore it to factory in front of you before you pay, because it requires the owners password to wipe it. Thats part of the security with iOS 7, if they aren't able to do that then I wouldn't consider buying it no matter what the excuse.

Too late now though, but thats what you should have done. You may want to ask TMobile what they recommend in this situation.