We will just assume that the money is held in escrow account with a title company. Given where the market is, you should be able to exit gracefully here. Your agent should have kept in place a number of escape clauses for you to back out legitimately. One of this would be the bank going over the time you committed to wait for the approval (in the short sale addendum mentioned in a previous post). Escrow will only release funds if both selling and buying party agrees, so if you decide to pull out prematurely, the seller can refuse to allow escrow to release the funds. Our suggestion is to wait out the time commitment you made and if the bank goes over, you are free to pull out with the deposit. If you really want out of the deal, just wait for the bank to reply. Most of the time, the bank will want something else added or taken off your offer, and when that happens, that is TECHNICALLY A COUNTER, and you can get out of the deal at the time. You are only stuck if the bank approves your offer as submitted (very very rare), and even so, you should still have inspection and other contingencies to get you out of it.
-Raymon and Christine
The prior two answers are both absolutely correct. I will add that I hope your agent used a CA Association of Realtors purchase form CA-RPA and a Short Sale Addendum form SSA. If so then you can look at the very first paragraph of that two page SSA and there will be a standard time frame (that can be changed). This will tell you how long of a commitment you made to stay in the deal. Typically it is 45 days but that number can be changed. This means that you agreed to remain patient and allow the seller and his/her agent at least 45 days to get the sale approved. You should not be walking away before that 45 days is up.
Of course all contracts can be different but this is the most typical way to write an offer on a short sale. And as always, if you are unsure you should consult legal counsel. Good Luck
The money should be deposited in an escrow account with a title company, not a trust account. Your contract should be written in such a way that you can get the funds back if you decide to cancel or the short sale is unsuccessful.