Legal Question in Real Estate Law in Kansas

My husband and I were trying to buy a home - the lender told our agent and us that we were preapproved and to go on and make an offer. We offered the seller the listing price and put down $500.00 earnest money. We ordered a mold inspection due to the fact it was disclosed the basement had flooded prior to the house being remodeled. I have very severe allergies to mold and cause a lot of upper respiratory problems. Simultaneous to receiving the inspection report (the very same hour) we learned from the lender they could not give us the loan due to an issue with a short sale my husband had before we knew each other. The short sell was disclosed to the lender from the beginning and I feel this issue should have been resolved prior to final approval and offers being made. Since the house had high levels of mold, and had we been approved, we would not have been able to go on with the purchase without it being a risk to my health. My agent prepared an Agreement to Rescind the Contract - with us, the buyers, paying the $190.00 inspection fee and the balance of $310.00 being returned to us. The time we made the offer until the time we discovered the above was nine days. I drove by the house every day and there was never a "sold" sign attached to the For Sale sign. It was also on the internet during this time period. I'm not sure how many calls for showing the sellers' agent declined but I really don't feel there were many. The earnest money is being handled by a Title Company which they require both the sellers' and buyers' signature on a document to release the money. The seller wants us to pay the $190 and keep our full $500 earnest money. Can they get away with this?

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