The nonrefundable money will go to the title company anyways, so if the Wholesaler is a phony, the title company will release your money back to you. 

If there are Federal liens against the seller he may not be able to get a particular property released of those liens unless the entire amount owed is paid, which may be significantly greater than the sale price of any single property, or even of all his properties.  

When/if they ask for a specific reason you state that you do not release that information and stop the conversation.

Doing it that way you know your buyer will close and has handed funds to the escrow agent before you release funds.

The initial draw should be enough for permits and materials, and additional money is released as work is completed.  

I went down and signed the paperwork to release the lien and collected my money all nice, neat and simple in the end.

I get not releasing it to an owner, but it seems to be in their client's best interest to release it directly to a collection agency.

Wiring to the title company is fine but a release of earnest money is signed at that time. 

I have not released the tenant.

There will be an inspection to make sure the work is done for that phase and the funds will be released to you.