Legal Question Regarding EMD (Specifically in MI)

[Account Closed]

All,

I believe I know the answer to this but am going to ask anyway. I was in contract for a property with an escrow that ended up being around 3 months (yes, obnoxious I'm aware). I initially offered and had acceptance as a cash offer. I later decided I wanted to finance the deal instead of use cash which was signed off by the sellers.

This property had a foundation issue that I was not aware of the severity of as I didn't see the property in person until I was well into escrow. I'll save the details but bottom line, after getting an engineering report and providing it to my lender, they said they would not be able to fund the deal unless the suggested repairs in the report were made. This seller was not interested in doing the repairs and I was not willing to proceed paying cash and having to deal with a problem that would ultimately cost me 15-20K to fix at some point down the road if I ever wanted to sell.

Now, the seller is refusing to release my EMD. I didn't have any specific contingencies initially but when the seller signed off on the deal becoming financing, according to this purchase agreement (standard Realtor form), if I were to have selected financing initially, the deal would have been contingent on being able to obtain financing. I'm assuming that since the seller signed off on that, the deal in its entirety is now contingent on me being able to obtain financing.

Since the lender won't lend without the repairs done (we went through 2 different lenders), I can't imaging the sellers have any ground to stand on here, do they?

The agreement says that any disagreements will be dealt with in court and the non-prevailing party will be responsible for all legal fees associated here. This would be a major mistake for the seller assuming that my contingency is accurate. The EMD is only $500 and it would be a complete waste of time and money on their end and I know they don't have much of either.

Bottom line, am I accurate in assuming they don't have a leg to stand on here since nobody will lend on the property and they signed off on it being a financing deal?