You should probably take a look at page 5 of the following document to get a feel for how successful the Seller might be with the particular lender/servicer they are dealing with: http://docs.Steven-Anthony.com/LoanModStats.pdf
It's very disheartening to see how ineffectual the Loan Modification program has been. To date, out of all homeowners eligible for a Loan Mod review, only 1.4% have received a permanent Loan Mod - and this is information the Seller should be aware of before walking away from the transaction!
Ask your Realtor to share this information with the Listing Agent/Seller. This might bring about a change of heart when faced with this reality.
Of course most short sellers don't have money to pay you liquidated damages. Hopefully you can find some to pay for things like your inspections.
If this owner has a lot of negative equity, you could probably still get the house, because the bank is not going to work out favorable loan mod terms for this owner, certainly not one in which involved a permanent principal reduction down to current fair market value for the life of the loan (without it being tacked on in again in 20yrs).
There's a really neat chart you could bring to the attention of this seller to show him/her that they have a .01% chance of receiving a permanent loan modification from their bank and that the bank is just stringing them along to see how much $$ they can squeeze out of them before they go back to short selling the house to you. All she's going to get from the bank is a trial modification period. Then it's back to square one.
If you would like a copy of this chart to give to this seller, just shoot me an email.
The person that is best equipped to help you would be your Realtor. If they do not help, ask to speak with their broker. The broker is legally responsible for the performance of their agents, so they might be able to help you determine your options.
A couple of points to consider:
1. If the sale is a short sale, then you probably signed a form (Short Sale Addendum) that states that the sale is subject to lender approval. That means that if the lender is able to work out a loan modification with the current owner, they would rather do that than pay all of the closing costs and take the hit on the loan.
2. Part of this in my view is where you were in the transcation. Had you removed all contingencies and were closing next week? This is why the Broker might be able to provide you with some options.
The key to persuading a seller to pay you money is that you need to prove damages, how you were hurt. It might be easier to invest your time in moving on than trying to get damages out of them. By the same token, it you have in fact opened escrow, you need to make sure that you receive a full refund of your deposit.
I would suggest the exact details of the contract, Buyer/Seller circumstances, and other pertinent laws need to be considered by a lawyer if you are looking to obtain actionable advice regarding your situation.
Also, note you and the Seller likely initialed, and therefore agreed to, Para 17A&B of the CAR CA Residential Purchase Contract, which requires Arbitration and Mediation of disputes. However, there are some exclusions via 17B(2)iv:
(2) EXCLUSIONS FROM MEDIATION AND ARBITRATION: The following matters are excluded from mediation and arbitration: (i) a judicial or non-judicial foreclosure or other action or proceeding to enforce a deed of trust, mortgage or installment land sale contract as defined in California Civil Code Â§2985; (ii) an unlawful detainer action; (iii) the filing or enforcement of a mechanic's lien; and (iv) any matter that is within the jurisdiction of a probate, small claims or bankruptcy court. The filing of a court action to enable the recording of a notice of pending action, for order of attachment, receivership, injunction, or other provisional remedies, shall not constitute a waiver of the mediation and arbitration provisions.
As shown above, Para 17B(2)iv appears to exclude matters within the jurisdiction of small claims from mediation and arbitration. So, if it costs less than $7500 to "make you whole" an easier, though perhaps not optimal, option is small claims.
This aside, it never hurts to get a true legal opinion because getting a complete picture of your circumstance requires a much longer discussion than can be effectively supported here. This may be a simple or complex issue, as such; it never hurts to get a real legal opinion after a complete picture of your circumstance comes into focus.