This seems like an only in New York type story or something that will be part of an urban myth, but it has really happened. An article from The Real Deal details how a co-op buyer at 1130 Park Avenue went to contract and was approved by the board, but before closing passed away. The estate decided it did not want to move forward with the purchase and sued for the deposit back. The result? The State Supreme Ruled- tough luck- the dead person's estate doesn't get the deposit back. Now that's a tight contract!
Co-op seller keeps dead buyer's down payment (The Real Deal)