What happens to the earnest money when a home loan is denied?

My husband and I just got word that our home loan didn't go through. We have had many issues with the first lender and when we changed lenders, we were told there was a guarantee we would close in 30 days. Well, we didn't do anything wrong, but things on a credit report that were not supposed to be there still were and that blew the deal. Anyways, the sellers are threatening to sue both parties' agents for them having to pay their mortgage on the house (they still live in the home and HAVE been living there) and want the earnest money from us. As I understand, since the loan didn't go through for us to buy this home, they are not entitled to the earnest money. In order for us to get the earnest money back, we have to have both parties sign a release. We signed, but they refused. It was briefly explained to me that since they won't sign, it will sit in a trust fund (?) for two years and be investigated to see whether or not the judge releases it back to us, or if they get it. But, I was also told that it could be cashed between now and then even when they refuse to sign the release. So can anyone tell me, which one is it? Does it sit there untouched for two years, legally, or do they have the right to cash it no matter what, even though legally they are not entitled to it because the loan didn't go through? Let me remind you, we did not back out of the deal. We have been going after this home for three months or so now and never gave up on it. Someone please help me! I have limited understanding of these kinds of things. Thank you in advance!