What happens to a buyer's deposit if the sale fails due to financing?

• A. Deposits are automatically forfeited to the seller.
• B. Deposits may be refunded or applied to closing.
• C. Deposits become property of the broker.
• D. Deposits are returned to the seller.

Answer: (B)

When a sale is contingent on the buyer obtaining financing, the contract protects the buyer. If the buyer can’t secure financing within the agreed contingency period, they can terminate and recover the earnest money. The deposit is usually held in trust by the broker or lawyer and isn’t automatically forfeited to the seller just because financing fell through. If the deal does close with financing, the deposit is simply credited toward the purchase price at closing. So, the deposit may be refunded or applied to closing, depending on whether the financing contingency allows termination or the transaction proceeds.