Most standard Purchase and Sale would allow you to cancel the agreement and receive your earnest money deposit back. (Technically the non performance of the seller would cancelthe contract) The devil is in the details and every contract can be different. Read you contract and if you do not understand it consult an attorney.
Contact an attorney right away. Short sales are a nightmare, and you are finding out exactly why. I am so sorry that you are going through this, but it happens all the time with short sales. They are a real grind.
Get a real estate attorney immediately and try to get that money back.
Ellen Friedman, Keller Williams Realty, firstname.lastname@example.org