What happens to the deposit if a gap closing arrangement later falls apart entirely?

What happens to the deposit generally depends on why the arrangement ultimately fell apart and what the written escrow or gap closing agreement itself says about that scenario, since these arrangements are typically documented specifically to address what happens if the promised follow-up step, such as registration, never actually happens.

If the underlying reason the arrangement collapses points to the buyer's default, such as funds that were never actually available, the seller may be entitled to treat the deposit similarly to how it would be treated in any other buyer default, potentially retaining it as part of addressing their losses. If the collapse instead reflects the seller's inability to deliver clear title or complete their side, the buyer may be entitled to have the deposit returned and pursue other remedies for the seller's failure to complete. Because a failed gap closing is a more complicated situation than an ordinary failed closing, given that funds and possession may have already changed hands, this is a scenario where both sides should get their lawyers involved immediately rather than trying to resolve it directly between themselves.