You should consult this with an attorney. Assuming the bank has NOT approved the sale (as this would still be a contingency to having a contract) either party can back out of the deal if you want to. If the bank has provided written acceptance of the offer (which is a seller contingency) the seller may still back out, but I believe they would have to return the deposit check, and the seller would only be liable for two routes of recourse. I am not a licensed attorney, and do not know the specifics of your individual situation and as such am only speculating and I am not providing you legal advice of any kind.
One potential possibility of recourse is to sue you for 'specific performance' and would then have to prove that there are no comparable properties available on the current market (very difficult).
The second potential option would be to sue for breach of contract, and all the buyer could be awarded is any out of pocket expenses they made while acting in good faith that the deal was moving forward (appraisals, physical inspections, etc), and anything further than that the seller might be able to counter with the defense of entering into a contract while in a state of duress. I must insist that you seek the legal advice of a confident attorney, and if you havenâ€™t already done so, weigh the options with your CPA or confident tax consultant.
I hope this helps and you can also click on the Web Reference link to see several last minute pitfalls that would make the short sale unfavorable to the seller (maybe what you're facing now).