People come to the house of his deceased grandfather and seek blessing from its water. What should he do?

Firstly: 

It is not permissible to seek blessing from the relics of anyone except the Prophets, whether those from whom blessing is sought are righteous or evildoers. We ask Allaah to keep us safe and sound. But the fact that people are seeking blessing from one who did not pray is indicative of profound ignorance and heedlessness, and shows how great is the people’s need to learn sound ‘aqeedah that will save them from misguidance. 

The evidence that it is not permissible to seek blessing from the relics of anyone other than the Prophets is the fact that there is no report that any of the companions of the Prophet (peace and blessings of Allaah be upon him) sought blessings from Abu Bakr, ‘Umar or anyone else among the Sahaabah (may Allaah be pleased with them). If that had been something good, they would have done it before us. 

Al-Shaatibi (may Allaah have mercy on him) said: After the death of the Prophet (peace and blessings of Allaah be upon him), none of the Sahaabah (may Allaah be pleased with them) did anything of that nature with regard to those who succeeded him as leaders. The Prophet (peace and blessings of Allaah be upon him) did not leave behind in the ummah anyone who was better than Abu Bakr al-Siddeeq (may Allaah be pleased with him), who was his successor, and he did not do anything of that sort, and neither did ‘Umar (may Allaah be pleased with him), and they were the best of the ummah after him. Neither did ‘Uthmaan, or ‘Ali, or any of the Sahaabah, and there is no one in the ummah who is better than them. There is no report from any of them via any sound isnaad that they sought blessings in any of these ways or similar ways. Rather they limited themselves to emulating the actions, words and conduct of the Prophet (peace and blessings of Allaah be upon him). So there is consensus among them that all such things should be avoided. End quote from al-I’tisaam, 1/482 

Shaykh Ibn ‘Uthaymeen (may Allaah have mercy on him) said: There is no one from whose relics blessing may be sought except Muhammad (peace and blessings of Allaah be upon him). No blessing should be sought from the relics of anyone else. Blessings may be sought from the relics of the Prophet (peace and blessings of Allaah be upon him) during his lifetime and after his death, so long as those relics remain. For example, Umm Salamah (may Allaah be pleased with her) had a vessel of silver in which were a few hairs of the Prophet (peace and blessings of Allaah be upon him) by means of which the sick sought healing. If a sick person came, she would pour some water over these hairs, then stir it, then give it to the sick person. But in the case of anyone other than the Prophet (peace and blessings of Allaah be upon him), it is not permissible for anyone to seek blessing from his saliva, sweat, garment or anything else – rather that is haraam and is a kind of shirk. End quote from Majmoo’ al-Fataawa, 2/107 

Secondly: 

Your friend has to do two things: 

1 – He should warn people against this haraam means of seeking blessing, if he is able to do so. Otherwise, he should seek the help of knowledgeable people to guide the people to the truth and show them the right way, and warn them against corrupt beliefs that will lead them to shirk and bid’ah (innovation). 

2 – He should get rid of this tap by removing it, cutting off the water supply and so on. He has an example to follow in ‘Umar (may Allaah be pleased with him) who cut down the tree of al-Hudaybiyah when he heard that some people were praying at the tree. 

Al-Shaatibi (may Allaah have mercy on him) said: Ibn Waddaah said: I heard ‘Eesa ibn Yoonus, the mufti of the people of Tarsoos, saying: ‘Umar ibn al-Khattaab (may Allaah be pleased with him) ordered that the tree beneath which the Prophet (peace and blessings of Allaah be upon him) had received the oath of allegiance (bay’ah) be cut down, because the people were going and praying beneath it, and he feared that they might fall into fitnah. End quote from al-I’tisaam, 1/448 

Al-Haafiz ibn Hajar (may Allaah have mercy on him) said: I found with Ibn Sa’d a saheeh isnaad from Naafi’, saying that ‘Umar heard that some people were going to the tree and praying there, so he warned them (not to do that), then he ordered that it be cut down, and it was cut down. End quote from Fath al-Baari, 7/513 

Thirdly: 

Whatever of this money he has taken, there is no sin on him for that, because it is money that people gave willingly and has no owner, so it is permissible for him to have taken it. But it is not permissible for him to approve of this evil deed in order to take the money, rather he must do what is mentioned above: explain to people and put an end to this evil. 

It says in Fataawa al-Lajnah al-Daa’imah (23/227), with regard to making use of things that are donated to the awliya’ and the righteous: … but if the things that are donated to the awliya’ and the righteous are things other than sacrifices, such as bread, dates, chickpeas, sweets and other things the permissibility of which as food does not depend on the manner of slaughter, then you should avoid distributing them to the people because that entails propagating innovation and cooperating in spreading it, taking part in the manifestation of shirk and approving of it. But they come under the ruling on property whose owners have forsaken it and left it for whoever wants to take it, so whoever takes any of it, there is no sin on him. 

End quote. 

And Allaah knows best.