In prior times, there were words called "escape clauses," which stated, IF "this" happens, THEN the buyer [or seller] can void [escape] the contract. Today such words are called contingencies and have the exact same effect: one party or the other can void the ratified agreement. The contract may have a home inspection contingency, an appraisal contingency, a short sale contingency or some other circumstance required to satisfy and complete the transaction. If one of the parties attempts to void the contract without having such a provision in the contract, the most likely beneficiaries will be attorneys.
In the case you presented, it would be good for the seller if he has an "I don't feel like it anymore" contingency. I suspect there was a short sale contingency. I also suspect that, if the buyer's circumstance develops an ability to make payments or arrange for a loan modification, the bank would  prefer NOT to take a loss,  deny approval for the short sale and  modify the loan, the results of which do not produce a write-off/loss to mitigate.
But this is becoming more common in this market.
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