This is basically you paying into a bond that will pay damage and lost rents if you are unable to the landlord but this isn't a collective of money pooled together for the common good. 

", shows your inexperience.The cashflow numbers for Class C & D properties only look good on paper because few investors plug the correct assumptions into their ROI calculators.Have seen many newbies use a 5% vacancy factor for Class C & D properties with nothing built into their calculations for tenant-nonperformance or the extra damages low-demographic tenants statistically cause.BTW: we recommend using at least a 20% Vacancy+Tenant-nonperformance number.

As a Property Manager in a market where many owners choose to manage on their own, I've seen several examples of owners losing their homes or properties because their tenants did not pay or caused excess damage.

Does that mean I forfeit any right to make any deductions for damage and must return the whole deposit?

I don't agree with the fee comment - certainly that can be an element of a scammy lender but there are certainly lenders that do require some upfront fees and other vendor/pass-through fees in addition to the appraisal. 

My father is in the home improvement bussiness, we just had a hail storm pass through that damaged peoples roofs.

You can even sweeten the pot by telling them they don't have to clean, and you will hand them their deposit on the day of move-out after a 10-minute inspection to verify there are no damages. 

Restricting certain elements you can advertise may not be good, but it is certainly not evil.Is the settlement good for sellers?

Unless you are altering roof lines, overhangs, driveways or other exterior elements, no site survey will be required."

Changing the locks and adding security to the home, to ensure he does not vandalize or damage the property.