Well, that would seem to be a violation of their fiduciary duties. You would have to ask the borrower what they wanted to do after the borrower consulted with their own legal counsel. Not knowing what State you are in or what type of purchase agreement this is, leaves us in a position to not be able to answer your question. You seem to be having questions on a situation that is unusual, it might be better to get your legal counsel involved also. Typically, a realtor is not allowed to hold an earnest money deposit as they are not a disinterested third party.
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