Contracts

• Read the contracts and all the addendums. Contracts are legally binding, but a short sale is different from a conventional transaction. Many short sale contracts have verbiage that allows a seller to cancel a sale, right up to the time of closing. The lender's addendum might even include a "kick-out" clause that requires the listing to remain active in the multiple listing service (MLS) until closing, with the lender reserving the right to accept a higher offer. If that happens, the buyer's good faith money is returned.
  
  

Investigation

• Try to discover why the seller is canceling the contract. Once you know the reason, you know what options are available to you. If the lender refused the seller's request to be released from all future liability for the note -- deficiency judgment -- a negotiator might resolve the issue with the lender. If, however, the seller agreed to a loan modification, this is more favorable for the seller and won't be resolved by a negotiator.
  
  

Breach of Contract

• A breach of contract occurs when a buyer or seller fails to comply with the terms and conditions of a sale. The seller's penalties range from the return of the good faith money to a forced transfer of the property to the buyer. There are standard contingencies in real estate contracts -- home inspection, financing, appraisal -- but short sale contracts aren't standardized and vary among lenders. Read the contract closely and check for the possibility of a breach.
  
  

Resolution

• If the seller cancels, you should be refunded the good faith deposit. Request the "release of escrow" form from whoever is holding the funds, and both you and the seller sign it. If this isn't sufficient for you, try legally binding arbitration, if the contract allows it. It's cheaper than litigation, and the local Realtor association can give you names of arbitrators in your area. Otherwise, consult with an attorney on the merits of filing a lawsuit against the seller.