You are in a short sale situation, the bank has to give final approval, during this time if you have not heard back from the lien holder, (bank), and you decide to cancel the contract, you can. But let your agent or attorney handle that. Once both attorneys agree to release your earnest deposit funds from escrow than you receive your deposit back. At this point in time you should know who holds your escrow.
Your Buyer agent is limited to the seller's paperwork, so your agent is very limited on what she/he can do besides passing on information to you on the process of the short sale. In this situation she/he is the one that set appointments to obtain the certificate of occupancy, which you have to pay, in Elizabeth is $65 building and $40+ fire.
The selling agent or attorney that is handeling the short sale does not receive the documents in a timely manor than yes the lender will close the file. Then the whole process starts again.
Just because it is a short sale and you are most likely buying the property in as is condition, you are entitle to do a home inspection, at this point you should of have done, because if you wait until you hear from the bank, they give you 30 days to close, you do a home inspection and their are major issues with the house. Guess what you just waisted all this time for nothing.