Earnest Money Dispute

[Crystal W.]

Hi, All.  We are currently in an Earnest Money dispute.  We were set to close on a vacation/investment property and at the 12th hour (literally 2 weeks prior to us thinking we were to close), our lender said the property could not appraise due to it being split into three legal lots, that the appraiser could not appraise it as one property nor several properties (note, we were contracting to purchase 3 units as one property which our understanding was that the property could not be subdivided, as it turns out, there were already 3 deeds on it and the current seller had 3 notes on it).  The details are numerous and I don't feel as pertinent in the scenario, but if you think more details are necessary, I will be happy to share further.

Anyhow, the lending agent basically said the bank would not be able to go through with it as one property or three because of the legal description issues and the appraisal issue.  We did not make the contract contingent on financing because we were pre-approved, however, there is a section that states the following:

"Property Approval: If the Property does not satisfy the lenders' underwriting requirements for the loan(s) (including, but not limited to appraisal, insurability and lender required repairs), Buyer may terminate this contract by giving notice to Seller prior to closing and the earnest money will be refunded to Buyer. "  

The seller is outright refusing to sign the document to release the funds.  Here are my questions:

(1) has anyone had an issue similar to this and do you feel it meets the contract provision for termination and refunding the earnest money.  (Note, we did try to find an equivalent lender and were unsuccessful anyway, almost everyone I talked to had concern for the appraisal)

(2) In Texas, can the seller put the property back on the market while the dispute is still pending or is that impermissible?  We will likely file suit either way, but it would obviously be helpful to know that the seller has the pressure of holding on to the property until this is resolved.  

Thank you in advance for any and all advice.