If we have to demand the deposit, as the law says we should do, it says to do it by certified mail.

Offer the security deposit for possession in return.

I have no idea what kind of repairs/work will be needed until it is vacant.But yes, you need to check local laws, but you likely can keep the deposit to cover the repairs and such.

On the back of the check they just indicate "For Deposit Only XXXXXXX". 

I take one application at a time, unless they have not put up their holding deposit.

Then when I put it back on market I had to give concessions to get them rented like no security deposit and the rents were about 20% lower than they were in 2007.I'm fine with boom and bust as that's natural.

Such as asking for closing costs to be paid, prorated rents depending on when closing is during the month, getting security deposits, ect.. looking for creative details to include and anything I may not think of that, from simple to complex.

I know that she will lose her deposit but what other things can I do to protect my investment without being an *** of a landlord?  

Good luck, FrankOpen a Mango™ Savings AccountEarn 6.00% Annual Percentage Yield with Mango Savings™ if you' re enrolled in Mango Direct Deposit and receive Net Direct Deposits of $800 or more to your Mango Card account during the calendar month.

I would check with attorney on the entire situation, including withholding deposit for pro-rated extra time they are staying.