Depending on the contract Far, Far-Bar, As-IS, etc.. has contingency for HOA approval. As agents we cannot comment on contract interpretation.
You did not indicate what side of the transaction you are on, but generally if the buyer is denied, a seller would not have much of a case to claim their deposit unless the buyer lied on the application.
If you my seller, I would recommend giving the buyer back the deposit, and find another buyer. If you are the buyer, I would submit a request to cancel and refund of deposit.
It is very rare that an HOA disapproves of a sale, but it has been known to happen; for example, when a buyer's references do not check out, or if the HOA has a first right of refusal on a property.
Just to be on the safe side, you may want to consult a real estate attorney on this issue.
Marc Jablon, The Jablon Team
RE/MAX Complete Solutions
You probably should address this question to a lawyer.
I'm not an attorney, and this is not legal advice. However, if you are applying for a mortgage, the lack of Homeowner Association approval of the sale may prevent you from getting mortgage approval. So if you have a mortgage contingency in your contract, your deposit may be protected.
Without knowing the specifics of your contract, any comments you receive here are just speculation. Please seek legal advice.
Are you working with an agent? If so what does your agent have to say about this?
If you are working with an agent did you receive and Condo Disclosure or Homeowners Association Disclosure?
If you have one of the above mentioned disclosures, the question is addressed in the disclosure.
If you wrote up an offer yourself, or it is something the seller wrote up you are playing a different game. Refer to the terms of such contract to guide you. If there are any doubts contact a good Real Estate Attorney.