Real Estate Law
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This depends on your contract. Most sales contracts will state that the deposit is considered "liquidated damages"...this allows the seller to keep the deposit if the buyer breaches the contract.
If your contract contains this language? Then you are free to keep the deposit.
If not? Then it is more complex...you could still keep it...but if the buyer sues you, you have to prove how you were harmed by their breach...that can be tough to do (which is why most contract will have the liquidated damages clause in the contract)
Please let me know if you have more questions. I am happy to help if I can. Otherwise, please rate the answer so I may get credit for my work.
Tell me, how were you harmed by this?
I ask because if you want to sue you have to "prove up" how you were harmed. That is, you have to be able to prove to the court how much their breach of contract has cost you.
You have a case...but the problem is you have to prove how much they owe you. Next time consider placing a liquidated damages clause in the contract to make it easier to keep the entire deposit. Also consider negotiating with the buyer to give them a portion of their deposit back in return for settling the case.