I would never release a deposit before settlement. Seen it go wrong too many times. If the vendor need the deposit for another purchase they can apply at the bank for a deposit bond in its place. If they want the money for 'other' things, then that is a clear red flag and an absolute 'no'.
Wow really? As someone who has been on both side of a section 27 and was not up to anything dodgy, then that statement could be taken the wrong way.