My question involves landlord-tenant law in the State of: Texas

My husband and I have been hunting for a rental house for a few weeks. I found one I really liked, but other people inquired first and I was told I might hear back if the others fell through. Houses move quickly in my area, so when I found a second house that fit most of my criteria, I filled out an application and paid the application fee. At this time, it is October 21.

October 22: Upon application approval for the second house, the landlord tried to get me to sign a lease ASAP, but I was hesitant because I was waiting to hear back about the first house. Also because my current lease at my apartment isn't up until 11/15, but he wanted me to move in 11/1, so I'd have to pay double rent for 2 weeks and I'd be REALLY scraping by for a month. The landlord told me if I paid the first half of the security deposit ($700 out of $1375), he would let me have first pick of the house and stop showing it, but he also said there were other qualified, interested applicants. It was 100% construed as a security deposit in all verbal and written communication. I did not sign the lease.

October 23: I went ahead and paid the $700 security deposit, just in case the other house didn't come through. I figured paying double rent for 2 weeks was worth it if I secured a house that worked. He gave me a receipt, which he signed and dated, that stated the $700 "security deposit" was received.

October 28: The first house I wanted contacted me saying I could have the house if I wanted it, so I said yes. I notified the landlord of the second house immediately. He responded immediately and is claiming that since he took the house off the market, he lost out on 5 days of advertisement. He said that if he doesn't get a tenant to move in by the 1st, rent costs about $45 per day, and he'd use the $700 to pay those costs until a tenant is secured. Interestingly, in his response email, he twisted the wording of the $700 security deposit to just "deposit" in the first paragraph, then to "holding deposit" at the end. That's the first time he ever regarded it as such. I thought my withdrawal of interest wouldn't be an issue since he said there were other interested people in line.

I looked up the Texas Property code, and the costs and damages he's claiming (in Sec. 92.1031 (b)(2)) only apply to tenants who signed a lease and breached it. Since there is no lease signed, he cannot keep my security deposit which secures the lease. I'm 100% entitled to my deposit, right? I sent him an email including Sec. 92.1031 of the Texas Property code with "according to a lease between the landlord and the tenant" bolded, Section 92.104 (a), and the definitions of security deposit and tenant. I also included a forwarding address to return my money within 30 days of my withdrawal of interest, but he has yet to reply...

My questions at this point are:

1. Should I send a formal demand letter threatening to file suit?
2. Is he considered a landlord who is acting in bad faith if I'm not a tenant/a lease was never signed? (In other words, could I get the $100 plus 3x the amount wrongfully withheld plus court costs, as stated in Sec. 92.354, if I took him to small claims court?)
3. Isn't $700 a bit MUCH for a simple holding deposit, which is what he is now trying to claim it was?

I'd appreciate any advice on how to proceed.