See what the escrow folks say.
If no return of $$ you may still have a small claims case, if under 10,000.00.
Otherwise, you may indeed need an attorney to get involved...
Based on the specific language of the purchase and sale agreement as well as any changes on the escrow instructions, your loan approval, a condition precedent, you at be able to cancel and request your deposit.
Sellers refusal to sign cancellation may be without grounds. You should have all the documents reviewed by real estate attorney to best advise you.
Hire an attorney and a demand letter to escrow if grounds exists could do the job. And you would know exactly where you stand.
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Provided that you timely gave notice of cancellation and also provided that you properly followed the notice procedure, you should be able to get your money back. But, I would also look to the liquidated damages provision of your contract to determine if the Seller is entitled to retain your deposit regardless of cancellation. This would of course require a review of the facts and more importantly, the relevant facts.
As to escrow, they will do nothing unless there is agreement between Buyer and Seller. Most escrow instructions provide for resolution of disputes and also generally allow escrow to file an interpleader action, name both Buyer and Seller as Defendants, deposit funds with the Court and then let the Court decide who is entitled to funds.
In an interpleader action, the escrow company's attorney will be entitled to fees which will be payable from the interplead funds, i.e. the Buyer's deposit.
You may also have claims against the Seller and recover fees - but once again, one must review docs and get facts for accurate response.
Consult counsel, provide facts so that you know your rights and responsibilities.
All the best.
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I would need to look at your documents, but if the escrow instructions tell the escrow company to release funds if you cancel the sale and do not obtain financing, then they have no choice other than to release the money from you irrespective of what the seller is doing. I just handled a matter like this for one of my clients and got all but $83 back for them (the $83 was for some insurance request that was made specifically by my client but not necessary).