Is seller required to release escrow funds with loan denial?
It's not a matter of whether the seller has "damages" or not--it's that the deposit is legally the seller's to keep if the buyer breaches the contract by not closing. And the buyer is in breach if he cannot close for *any* reason which is not the seller's fault--so even if the reason for failure to close is identity theft, that is still a breach of contract, which allows the seller to keep the escrowed funds.