Reasons may include a failure by the landlord to provide peaceful quiet enjoyment of the premises to the tenant, defects in the property, failure on the part of the landlord to make a legally required repair, or a host of other reasons which seem to come out of left field and astound the landlord when the breach occurs and the tenant is demanding a refund of the prepaid rent.

Yes, I do.In fact, I've been on both sides, having intentionally allowed a property with soil defects go to tax sale in order to collect the surplus overbid funds (made $125,000 net profit on that play).Tax Title Service is in the risk business.

Since this is a "major defect" found during inspection, am I due the EMD back?

In a couple of weeks, when the property comes back on the market with a new listing agent, you are free to make a new (but much lower) offer with no contingencies since you already know what defects exist with the property.Confirm with your agent all of your options and potential consequences before you decide what to do.  

Yes, so basically the reality behind owner-financing is that it happens for one of three reasons: A - property is defective in some way and owner-financing enticement is absolutely necessary in order to attract a buyer; B - owner's taxable event implications; C - owner wants to convert the face value of CF from rental income to note income.

I despise the practice of tying up a property and ignoring obvious defects and the use the inspection report to reopen the negotiations after the seller has mentally committed to a sale.

It gets complicated when the six-month period passes but there is also defective service to the interest holders. 

Buyer has X Days to perform tests and X additional days to provide seller written proof of the defects they want fixed. they have X additional Days to come to an agreement.If you have something in E where it says "Contractor friend to perform walk through at buyers discretion" or some such legal mumbo jumbo you would be fine.Going back, my responsibility as an agent is to my client and if my seller had an offer and we negotiated 10K EMD, and the buyer put a bunch of stuff down that they saw (paint this railing, switch this light cover, chip in paint on handrail) and they wanted 6K credit.

I'm not familiar with MN but generally cities give you a reasonable amount of time to cure defects before penalizing you, where reasonable is left up to the courts and depends on specifics.

One of their guys saved me on a deal last year where he found a defect in the recorded deed that had to be corrected before closing.