The rehab funds are for completed work only so your parents would need to front the contractor like 15k let's say to get started and then they get their deposit back at the end of the project because they added 15k to the rehab funds with their deposit so 15k will be left over in the escrow account when job is done. 

Many tax sales require deposit up front and payment day of sale or soon thereafter. 

The Brokerage advises agents NOT to handle deposits, but have buyers send it directly to the closing company (e.g., closing attorney or seller attorney).  

Also check how long you have to notify the tenant that they won't be getting their full deposit back and how long you have to return the balance.

The vast majority of lawsuits against Landlords are for wrongful eviction, security deposit disputes, and Fair Housing Violations.

For example, if you plan to buy a home with a mortgage but you fail to make financing one of the conditions of the sale--and you aren't approved for the mortgage--you can lose your deposit on the home and could even be sued by the seller for failing to fulfill your end of the contract.An experienced real estate agent deals with the same contracts and conditions on a regular basis, and is familiar with which conditions should be used, when they can safely be removed and how to use the contract to protect you, whether you're buying or selling your home.4.

Hopefully you kept the deposit to cover the costs as that is likely all you'll see.

If there is a fee for breaking the lease, then add that to the invoice you send him as part of 'returning' the deposit. 

Would you charge damages from the security deposit?

I will want my tenant's deposits to give as I SOLD my property, only because of how stressful dealing with them was.