I am a lawyer, but not yours and I don’t practice in New Jersey. Obviously you should be listening to your lawyer’s advice on the matter.
The answer depends on the language of the contract and the real estate laws and customs in your area. I might ask your lawyer to review the actual contract to see what it specifically says on this issue. (Did you remind him that it was a non-contingent deal when you asked him what the buyer’s options were? If not, he may not have realized at that moment that it was non-contingent and given you the standard answer for a contingent contract.) If it is not contingent on a mortgage, the buyer’s failure to close should be a default, but it is likely that law and custom allow the buyer a reasonable delay of closing to complete the other transaction.
In New York residential real estate practice, under the most common forms of contract used, the mortgage contingency is satisfied when the buyer obtains a committment letter. A committment contingent on appraisal is not considered a qualifying committment letter, but one contingent on other customary terms, including sale of a prior residence and no material changes in financial position, is considered qualifying and will satisfy the mortgage contingency in the contract. In other words, according to the contract, the buyer with a qualifying committment (even one contingent on sale of prior residence or the buyer’s keeping his or her job) will have to purchase or forfeit the deposit regardless of what may happen.
However, the New York courts are exceedingly reluctant to enforce a deposit forfeiture where the buyer cannot complete the mortgage through no fault of his or her own. If, for instance, the buyer is laid off between the committment or closing, the courts will push the parties to settle without deposit forfeiture, or will be receptive to any argument as to why the forfeiture should not occur. Mostly they don’t flat out reject the contract language, but if you read the published decisions, you can see that they are working really hard to avoid further screwing the poor homebuyer that got pushed into a bad circumstance through matters beyond his or her control (and also giving the seller the potential windfall of retaining the deposit and then being to turn around again and sell the house – often for more money if the market is rising). The courts’ reluctance to enforce deposit forfeitures carries over, in varying degres, to both contingent and non-contingent contracts.
This, of course, is inapplicable to New Jersey, although courts all over are reluctant to punish essentially innocent buyers and give (what they may perceive to be) undeserved windfalls to sellers.
If I were representing a client in this situation, I would advise my client that at the end of the day that it would be difficult and expensive to fight to keep the downpayment, and to reach some sort of settlement to fairly compensate my client for his or her costs, but to return a good part of the deposit to the buyer. If the seller wants to fight, there are a bunch of legal steps necessary (at least in New York) to set yourself up for keeping the deposit, and if they aren’t done exactly right (and even if they are), it will be an uphill fight.
Good luck.