Keeping Buyer's Non Refundable Deposit

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Hi All,

Recently we got a house under contract at 1.1m. We then had a buyer sign an assignment at 1.2. The EMD was 36k and the buyer put 33k(?) into escrow. Then a few days later the buyer said they didn't want to go through with the transaction. This really messed us up because the seller was in pre-foreclosure and their house was going to auction very soon. This along with the fact that the buyer tried to cut us out of the transaction made us decide to try to keep his deposit. In the assignment it clearly states that the deposit is "NON REFUNDABLE". The only thing making the deposit refundable is if the property isnt delivered free of any cloud on title by the closing date. After the buyer already backed out the payoff demand from the lender didn't get to title before the closing date on the purchase agreement and came a week later. I know that the would be considered a cloud on title but it isn't the reason the buyer backed out and requested his deposit back and he hasn't expressly mentioned it as the reason since then. My question is considering these factors what would it be like trying to keep the buyers deposit? We have no experience with going through mediation for something like this. Can anyone help shed some light on the situation?