If yes then proceed. 

He proceeded to tell me he's building a house in a newer subdivision and because of a conflict the person building the house is backing out.

Might take a trip to the court house to get the details. 

Then, if the tenant threatens to take you to court for the security deposit, tell them "go ahead" but you have documentation to support your case.

I have listened to some of his stories and I am still trying to grasp what he wants to do with his sales proceeds.  

mortgage on those properties at a higher than market interest rate, then use those mortgage proceeds to finance new investments.  

@Chris Clothier   in my day of doing these it was not about the publics perception of the provider IE they are weak or strong.It was how they were sold the deal by the West coast marketers.. and in those days as you know the value proposition and the sales pitch was   CASH BACK AT CLOSING.not only did people get into these deals with only 1k out of pocket in the beginning ( because we allowed it and made the loan to put them into title) but they would get 4 to 8k cashout refi proceeds. this is what drove the model... frankly had nothing to do with the vendor or turn key company.. it was all about West coast marketing pitch.Remember these folks came to turn key from Weekend radio shows I LA.. way before BP or internet marketing.

In a word you would have to take Seller to court if push came to shove!

Does he need the proceeds of the sale right away or could he wait for some time if I offered him more?

I currently have a nightmare tenant that I have a court date for eviction.