Please help:( Cancelling a purchase contract before removing loan contingency

[Asal Al]

Hi everyone,
My husband and I were in a contract for a SF house in LA, having all 3 contingencies in place( inspection, appraisal and loan). We removed inspection contingency by signing CR1 form indicating: ALL Buyer contingencies are removed, EXCEPT: Loan Contingency and Appraisal Contingency.

The very next morning after we removed inspection contingency my husband (sadly and unexpectedly) got laid off from work!

The first thing we did was to call our lender/ broker to let him know we could no longer proceed with this purchase due to job loss/ unknown future. Our lender was very understanding and cancelled our loan application.

We are now in a very frustrating, back and forth argument with the seller side as "they are not going to release the initial deposit without cause".

They wanted us to provide them with "the official termination agreement and once that's verified by their brokerage we can move to the next step". Despite our interest in disclosing personal matter, but to show good faith and transparency, we provided the sellers with official letter of termination of employment from my husband’s employer.

They also demanded a document called loan denial letter; an official explanation signed by the bank, for why the loan cannot close!

Just to clarify, we are highly qualified first time home buyers (good CS, debt to income ratio and etc.). We even had an underwriter approval from our lender prior to making an offer for this house. In other words, our loan was never DENIED, it was simply cancelled by our lending agent after we got the bad news. We had no idea there was a difference between loan denial and cancelation. Our lender is not able to provide as with a loan denial document because the whole application was cancelled.

Can you please help us decide what to do next? We were under the impression that we could cancel the purchase with no risk to our deposit since we were still in loan contingency period. Do the sellers have the right to not release our deposit?

Our agent is not helping us at all! She’s just very unhappy she lost her sale’s commission and is basically taking the seller’s side. Also as a side note, the appraisal came back as asked price but no official document was signed to remove appraisal contingency.

Sorry for the lengthy passage and thank you in advance for your feedback.