Recoup deposit when short sale goes REO

Home Sale Hindsight

Q: I sent a short-sale contract termination notice to the seller’s attorney because the home was sold as a sheriff’s foreclosure and is now listed as an REO. The listing agent will not return my earnest money deposit unless the seller signs the cancellation rider. But, now the seller has left the country and cannot be contacted anymore! So how can I get my earnest money back? Was there anything that could have been done to prevent this from happening? –Mitch, Illinois

A: Ultimately, the specific instructions in your purchase agreement will control the circumstances under which the earnest money can be released back to you on cancellation of the transaction. Given that the home no longer even belongs to the seller, I can imagine that some brokers would simply give you the deposit back, while others would — exercising a not-inappropriate abundance of caution — stick with the letter of the contract.