The lease stated forfeiting deposit if you do not withhold the terms of the lease. 

I was not expecting 2 month's rent to be withhold, just one.my rent is not above market. in fact, i am getting $75 more than what the previous tenant was paying. my house is in the perfect location, amazing house and people think they can get in...until they see the requirements that i have listed to get in. that's why i had just 3 applications and rejected 2.I just talked to him after he avoided 6-7 of our calls.

Having another entire set of rules and inspections and paperwork to deal with, with a government agency that will make it nearly impossible to evict your tenant, and can withhold your funds for this and that - is really time consuming and a hassle.  

My daughter changed her income tax withholding so she had more take home pay, and saved the money to use as a down payment, and then made a deal with the IRS to pay them back what she owed them the following year.

They can withhold your check if they find a violation, and it can take a while for them to get their paperwork together to get your money coming again.So, if you don't absolutely have to accept Section 8, I wouldn't.The exception would be if you have a current tenant you like, who gets their Section 8 voucher after they've been in your building awhile, and they ask you to accept their Section 8, so they can stay - then it might be worth doing.And from my understanding, if you do this, you are not required to then accept Section 8 for all of your other tenants. 

2) Does you lease lay out the different, explicit reasons why you may withhold their deposit?

Check your state laws, too, about whether or not tenants can withhold rent based on habitability issues - and if that includes pests. 

And the PHA can withhold payments for various reasons. 

I would not bother with holding a property and scaring off other qualified tenants who don't want to bother with a property that is already taken.

If he is still trying to with hold the funds I would hire a lawyer.