Put a contract on a short sale property then bank decided to foreclose

[Jen Montgomery]

Thank you in advance for reading.
Had our eye on a Short sale property for about a month but asking price was over what we wanted to spend on something that we knew would require work. Price dropped dramatically overnight, so the next day we got in there with our agent and decided to put a contract on it. We bid almost twenty thousand over the new asking price. Seller agreed immediately and was sent to the bank. They gave a verbal agreement on a Friday, stating that they would send the contract over early the next week and even going as far to say when they thought they would want to close by. I realize verbal agreements mean nothing, but it did leave us feeling very positive that we would get the signed contract. We heard nothing during the course of the week so our agent left numerous messages. Finally got a call back stating that the bank had still not signed and that they were not responding. Two weeks later we find out that they will probably just let the house go into foreclosure. We are the only ones who even have a contract on the property. We are not competing with any other offers.
A few questions I have is, one, if we bid well over the new asking price, wouldn't it be in the banks best interest to agree to the contract?
Two, is this something that is standard in short sale? I understand that banks can decide if they want to short sale or foreclose, but once they advertise as a short sale, don't they have to abide by that? Or can they just change their minds regardless? If this is something that they can do on a whim, after they have already approved a short sale, I have no interest in looking at anymore of this type of property.
Thank you