Think of the short sale as a sale that is contingent on the lender's approval - the same way as buyers have contingencies, home inspection, financing, etc.
In this case, sellers decided that this transaction was NOT in their best interest and they decided to get out based on the lender approval contingency.
Can you blame them?
You would NOT want the seller to come up with $100K to pay off the mortgage - unless money is no object - so YOU could purchase their home, would you?
Unfortunately, it's the risk buyers take when purchasing short sales - sometimes contracts do not end in settlement.
Fortunately, there are other homes available on the mrket.
Best of luck to you here..and I suggest you just move along and forget this property. You can read carefully the short sale addendum which should have been used in your offer and check the verbiage so you understand it in the future. Most agents will review this with you so you know what you sign.
Erik J. Weisskopf, ABR,CRS,GRI