What should I do if a broker refuses to return deposit after bank denial?
In most states there is a TERMINATION of PURCHASE AGREEMENT. This form is used to terminate a real estate deal for lender denials, home inspection problems, and title of abstract problems just to mention a few. This form states what is to become of the earnest deposit that you made with your purchase agreement. This form is also signed by you and seller alike. This form cannot be altered in any way by the buyer.
If you have terminated your purchase and the earnest deposit was not a NON-REFUNDABLE, first call the Responsible Broker of the Real Estate firm you used, if that doesn't work, then call the Real Estate Commission that governs your state. I cannot think of any reason that a Broker (I mean a Real Estate Broker) would have any right to keep your earnest deposit.
As with any contract, there are provisions in a purchase contract which protect the buyer and the seller. There are performance standards which must be adhered to such as the financing contingency date. Notification in writing within the the time frame allowed is one of those performance standards. Otherwise your deposit could be at risk.
Read your contract or meet with your attorney to review it. If the Realtor still retains the deposit and is not entitled to [actually it would go to the seller in such a case], then your attorney could make a request to return it to you. If that does not bring the desired result, then contact can be made with the broker-in-charge of the real estate office to point out the problem. If that fails, then you can contact the state's real estate commission to have them involve themselves in the issue.
Realize that the opportunity to act correctly before leaping to the real estate commission phase is the proper way to pursue the matter. Advising them that that will be the next step to bringing about resolution may bring the desired result. As always, in legal matters, seek out legal experts.