Had an instance last year where we were in escrow with a scammer.  We ended up unilaterally cancelling the contract after a 2 day notice was served and escrow was able to cancel it without the consent of the other party.  In that case no funds had been received.

If I thought the listing would sell again in minutes, I'd probably counsel for a partial refund just to get the cancellation done with, so I can use the same escrow company again.  Given the instance you had (per a comment on Brian's question), I'd probably go for the full amount as would my sellers.  Days before the guy gets cold feet and a bad case of buyer's remorse.  With the market "cooling" this could potentially harm the seller.

In Florida, it depends on who is holding the escrow. If it is the broker and there is a dispute, the broker is required to notify FREC within 15 business days of conflicting demands but that does not apply if a title company or attorney holds the escrow.

Since you mention notice to perform has been served it sounds like both sides have their own attorney so I would also consult the legal hotline and my personal RE attorney.

"An escrow dispute, in itself, does not prevent the seller from advertising or selling the property." (FR).

Calling our attorney first.  I have been hearing about contracts being cancelled and buyers being pretty upset about loosing their deposits, especially if it's a large one, which many were this past few years.

Before doing anything (putting it back "active" in MLS, cancelling the existing listing contract, whatever), I want written advice from a real estate attorney.

Are you representing the buyer or the seller?  Regardless, we have had scenarios like this before and they usually resolve after people cool down. But when they don't, our contract provides for mediation/arbitration.  And we always recommend getting legal help.

I assume EMD in escrow and you represent seller. Legally the seller can show it active in MLS with notes about need to cancel pending. As listing agent I would work to find new buyer. 

I also assume contract has arbitration checked? If so, get that rolling. If not you need legal advice as to what to not say. 

What was reason for cancellation and how many days into the deal?

I need the emotional piece to advise fully. 

I had this happen one time in my career.  I went to my broker at the time and was advised to step away and let my clients reach out to an attorney.  Fortunately, the seller changed course and released the deposit.

The issue-we discovered a lot of issues under the house during inspections.  We reached out to the seller for some relief.  She would never respond so, which is fine, but we could not move forward.  The damage was in the thousands and my clients just could not do it.  We did find out later that this seller had done it to other potential buyers. 

Mediation may be required before taking it to the court of law. Buyer failed to perform and is out of the EM deposit and can be sued for double that amount (here in Utah). It happens!

Seller and buyer will meet through their attorneys in court. Legal fees could be substantial and make the buyer full of regret.

We use attorneys in 99.9% of our transactions.  I'll let them advise and recommend that our mutual client follow their counsel.

I relist the house subject to cancellation of a previous escrow.  I would attempt to get the buyer to cancel through their agent and ultimately suggest that my client give up the chance of getting the good faith deposit in order to successfully sell their house.

We are both in California. The note in bold at the bottom of the cancellation form indicates a fine will be imposed if one party does not sign. 
Certainly, the buyer would get a notice to perform. Failing that, I would next call the agent's broker. Failing that, my client would be advised to consult with an attorney. 
Too many agents (per real estate attorneys who do webinars) although well intending, take the wrong action and end up doing more harm than good. 

In Arizona, when a party is in breach, a cure notice is sent out. They have X amount of days to perform, otherwise the non-breaching party can cancel the contract and keep the earnest money. Buyer doesn't get to hold it hostage.

About 20 years ago I had a deal on a convenience store. The buyers were California real estate brokers with boundary issues. They kept visiting the store at all hours of day or night and talking to the employees, even telling certain ones who would be kept. This was all during escrow. The seller was mad as a cat understandably and numerous warnings from me had no effect. The buyers decided to back out of the escrow two weeks before close and they had signed off on due diligence so their earnest money was hard. They kept demanding their earnest money back and the seller said no way. Long / short that particular Escrow Company had the sole discretion to disburse the earnest money but they would not without a mutual sign off. That earnest money stayed in escrow for one year and every month service charges were attached. Finally at the end of the year the buyer threw up his hands and the seller got what amounted to about 75% of the earnest money.

As escrow agent, provided the terms of the escrow allow, have your attorney interplead the matter to a court of law. Buckle up buyer, you are in for an interesting and expensive journey.

At this point it is up to the attorneys. 

Have the seller's attny send a letter telling them to sign it or the seller may be suing you to force you to perform.  Signing may be much less expensive.

Let the attorneys sort it out, I tell my clients they have to do the right thing, if they choose not to, or the other side isn't, I "unleash the hounds" and step aside. There's also an obligation in CA for sellers to prove financial hardship if challenged, so keep the  EMD is not a given. I have had 2 buyers lose EMD's in 23 years and both deserved to and did the right thing...no fight.

Call an attorney

I no longer play an attorney on TV but ..... if you have proof that the buyer defaults & have given notice you can put the prop back on the market. I can see that the buyer is trying to screw up the new sale by not signing off on the contract - it's a nice thought but that's not going to work. 

You have to be sure all your t's are crossed with this one. In IL, we always use attorneys.

We always tell them that they may need to talk to a Real Estate lawyer about the situation.  We are not lawyers.

Buyer removed all contingencies?