When I brought up that withholding proper documentation could be a breach of contract, the response I received was that I could terminate the agreement, but I wouldn’t get my escrow or due diligence money back.  

The court forms do not track this type of eviction so based on your sophistication you may spend a considerable amount of time and if you are off in the slightest the court will withhold judgment. 

That is the main reason.. so they can low ball and make large spreads .. or withhold facts on the house and get their assignment fee and move on without much risk.

Some lenders do not withhold any retainage.

In a few of the states there is either a form. you must sign or an application that your escrow closer must file in order to exempt from any state taxes or withholdings that might normally be collected at sale . 

How long will you go without hot water before withholding rent, calling the city or just moving out?

If we find damages, we withhold the necessary amount from the security deposit to cover repair or replacement costs.

We also set up milestones for larger projects so they know they will get paid certain amounts when certain tasks are done, but always withholding a large chunk for the very end.

You can't go wrong with holding the property but again not ideal in your scenario

The tenant may be setting you up, hoping you don't respond so she has a reason to withhold payment and take YOU to court.