We Paid a good lump of our savings towards earnest money at the time of signing the contract for a condo. However, due to builder not agreeing to purchase the flood insurance required by the loaning bank, the contract was made void within 5 days (as specified in the contract). Now the builder is not returning the money. He wants to charge us a fee for the time he spent on the deal. In reality, we already have spent about $1000 on home inspection, appraisal etc on a house that we are not purchasing. I'm not sure how we should proceed. We really appreciate any suggestion.
It is important to visit an attorney and take your written contract (and all supporting documents and other materials passed between you and the builder or agent you worked with) as soon as practicable. I can't provide much useful information based on the information you provided in your question, because the legal rights and remedies you have against the builder will heavily depend on the language of the contract. An attorney will be able to "read between the lines" and give you a straight answer on what you can do to get your money back.
I mentioned as quickly as possible for a reason. In this economy, when a builder starts playing games with other people's money it might indicate that the company is having money problems of its own. If the company goes into bankruptcy protection before you are able to to anything about your money it might become extremely difficult if not impossible to get anything from the builder, depending on the situation. I don't mean to scare, just inform!
NOTE: This answer is not intended to be legal advice and should not be construed in that way. This answer does not create an attorney-client relationship and no such relationship may be created absent a signed retainer agreement. The author is licensed in Illinois only, and his answer is for educational purposes alone.