There's no such thing as a "standard" contract, and no no one-size-fits-all answer to a general contract question. When someone asks essentially "what does my contract say," and no one's had the opportunity to review the document at issue and discuss the facts with you, they have to realize that no one can properly advise you without such a review/discussion.
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I agree with the first attorney. However, if a lawsuit is filed the lack of proof of rejection of the loan application would make it hard for the buyer to avoid a finding of breach. Without litigation the seller and the buyer may disagree but the escrow holder is not going to make a decision as to who is correct. The finds may be held by the escrow holder until the seller and the buyer agree or until there is a final judgment.