Trying to buy first time thru Localbitcoins. I initiated a purchase and the seller enabled and funded escrow. He then said I just deposit $ into his bank account and after I send him a scan of the deposit slip, he will release the coins. He says he only sends me my verify code from local bitcoins after i deposit $.
I trade on LocalBitcoins and what you described looks normal. Check the transaction to see if the escrow has been funded. It should tell you somewhere around where the "mark payment complete" button is. If there is no such button then escrow has not been funded and you should not pay yet.
"how does anyone verify that the bitcoins were sent to the correct wallet? I assume it must go thru my localbitcoins wallet but there is no instruction to that effect."
The bitcoins in escrow will be sent to your LocalBitcoins wallet when they are released. If you arrange to have then sent elsewhere, then you have to check the block chain.
"What if $ is deposited and bitcoins never sent? Can seller claim i requested sent to a different wallet or must it always go to my localbitcoins wallet?"
Make sure that everything about the transaction is documented in the transaction thread. If the escrow is never released, you can dispute the transaction in 24 hours. The staff will review the transaction and decide who gets the bitcoins. You can upload the image of the deposit slip as proof that you paid.
Other things:
Take a look at the seller's feedback. If he has many transactions and good feedback, then he is probably legit, though it is not guaranteed.
Whatever you do, do not cancel/close the transaction after you have paid unless you have received the bitcoins.
