Personally, as an end buyer, I wouldn't have a problem with it because if I agree to buy the house then it really doesn't matter if I put up a $500 deposit or a $5000 deposit because I know I'm going to be paying whatever the balance is in a few weeks. 

Some specifics:*We were required to put down $12k in option deposit monies and also an additional $7500 for security deposit and some improvements.  

As for the court house steps, usually you need 5-10% cash deposit at the moment of the bid, with the balance due 24 hours , or whenever (some places 4:00 that day, some next day, some 100% at the time of the bid).  

If I give him back his security deposit then I'm down a security deposit, 1 month rent, and 1/2 month rent. 

would advertise it for lease with enuf rent & deposit required to get them out of tax jam.if tax is loooong overdue, then one has to wonder even if they are bailed out, its likely to be allowed to go to default all over again, so yea, in that case, quick sell it and get out of it since its supposed to be for profit but obviously its a loss in their scenario.

30+ SFH rentals, $30+/month in rental deposits, approx. $10K/month in cashflow. 

Then she moved out in mid-January and expected us to prorate her January rent and deduct it from the security deposit.

An alternative is to get them to agree to mediation / arbitration but it sounds like she just doesn't want to sell anymore.The language in the paragraph you copied basically makes repair of any 'violations' a condition of the sale and contemplates three options; 1) The seller repairs violations2) The contract is canceled with refund of deposit and specific expenses3) Contract if fulfilled with a $500 abatement in price for non-repaired violations (I assume you sent the requisite notice for this option)From what little I know, specific performance is difficult to win.

Here are the $s:-purchased at $56k-rehab cost of $14k-prepaid interest with my hard money loan (no payments now)-$900/mo projected rental income with tenant paying utilities-appraised at $99,900-I have an offer on the table for $89,900 plus $3,000 seller paid closing costs.I learned s lot on this deal and it wasn't a great one, so neither option (keep or sell) is an awesome one, but I'm new to this and trying to start small and learn.

The response was that they can deposit it by the 15th at the earliest to allow the check to clear.