Based on the behavior you've described I don't think I'd want her in my rental anyway and would offer her a deal to return the keys and leave, but I wouldn't do this without there being a consequence to her (deposit forfeited, rent paid for the time she's had possession and possibly lease break fee).  

All my leases state that smoking is not permitted and that if they smoke in or on the premises that they forfeit the security deposit.

If you don't feel like it will then forfeit your earnest money.

His concern, and rightfully so was, if the property took too long to sell, what would happen to his funds, would they be forfeit?

Let's say it's $100.Your contract would declare that, should you should fail to perform, you would forfeit your earnest money.

I had several immense advantages in putting this property under my own name that would have been forfeited were the property under an LLC:1) I used FHA financing.  

The holding agreement should state that the holding fee will be used for security deposit and first month's rent upon signing of the lease or forfeit (at least 50%) if they back out.  

Often times the buyer's offer to only forfeit the deposit though, but that should be specified on the contract.

So, basically, the Tenant forfeits his Security Deposit to the Landlord.You should seek legal advice, or at least review your State's Landlord and Tenant Laws and your Lease, to determine whether this procedure is appropriate in your State.I hope this helps you.

My lease states they forfeit the deposit at that time and I put it back on the market.