Account Closed No I am not yet in my option period yet as the seller hasn't signed my offer (which was accepting their counter from my original offer with a small caveat) but wanted to take a step back first before taking any further action.

You could open yourself to lots of liability , and or losses by the developers actions .

In my experience most people won't take the time or effort to take legal action against you for security deposit disputes.

What would be the legal course of action?

When a investment income property can not generate positive cash flow with a hypothetical 100% financing it will never generate cash flow on it's own.

I could tell you what I think is your best course of action for financing, and regardless how much you trust and value my opinion, it’s still only my opinion based on my experiences and knowledge.

I’m in a similar position up the road in Columbia.

Yes you do need to disclose an adverse action notice based on the consumer/credit report you used. 

YOU NEVER KNOW WHAT POSITION THE PERSON IS IN AND WHAT THEY MAY ACCEPT.

the issue your client may run into is that most hard money lendes will not / do not take anything but first position loans, so if he is trying to use hard money for a bridge or down payment he may run into trouble.