Final answer:
Legally, the broker must return the deposit to the buyer if the cancellation of the condominium purchase contract is within the allowable rescission period, despite the seller's instruction to retain it as liquidated damages. If there is a dispute over the earnest money, the broker might need to file an interpleader, but retaining the deposit or filing a lis pendens is not authorized.
Step-by-step explanation:
When a prospective purchaser of a residential condominium unit decides to cancel the contract within the allowable rescission period, and the seller instructs the broker to retain the earnest money deposit as liquidated damages, it is critical to understand the legal authorization available to the broker. According to the provided references regarding the possession and termination of a residential agreement, it is clear that if either party cancels the agreement during an allowable period, any sums paid should be refunded in full. This guidance indicates that, despite the seller's instruction, the broker is legally obligated to return the deposit to the buyer.
It is not within the broker's authority to unilaterally decide to retain the deposit as liquidated damages. If the contract stipulates a rescission period and the buyer adheres to it by providing timely written notification of their desire to cancel, then the return of earnest money is typically required by law. The broker must comply with these terms unless a court directs otherwise. From the legal standpoint, without any conflicting terms outlined in the agreement that would allow the seller to keep the earnest money, the correct action for the broker is to respect the rescission clause and process the refund.
If a dispute arises between the seller and the buyer regarding the earnest money, the broker may consider an interpleader action to have the court determine the rightful claimant of the earnest money deposit. Options such as filing a lis pendens, which is a notice that there is a lawsuit pending that may affect title to the property, are not applicable in this scenario as this action pertains to disputes over property ownership, not contract rescission and earnest money disputes.