Whether and how you can cancel a contract and get your deposit refunded depends on the contract's exact language, as well as the language in whatever "mutual release of agreement" you signed. You're going to need to see a local RE/construction lawyer for help to analyze the facts and the parties' respective rights. It's amazing how quickly a lawyer can resolve something that a non-lawyer can't, because most people are afraid of lawyers.
I'm not sure what"settling" means here - that's a word usually used to define the parties' positions after one of them sues the other. Presumably your "release" document included language about you getting your earnest money back, but no one who hasn't had the chance to review what you signed can advise you about it.
Avvo doesn't pay us for these responses, and I'm not your lawyer just because I answer this question or respond to any follow-up comments. If you want to hire me, please contact me. Otherwise, please don't expect a further response. We need an actual written agreement to form an attorney-client relationship. I'm only licensed in CA and you shouldn't rely on this answer, since each state has different laws, each situation is fact specific, and it's impossible to evaluate a legal problem without a comprehensive consultation and review of all the facts and documents at issue.
To answer your question, yes you can sue, but that doesn't mean you will win. As the other attorney has said, it's going to depend on the language of your contract and especially that "mutual release."
If you are serious about going after your money, it will probably start with an attorney doing a document review to determine what your legal rights and responsibilities are. If the lawyer believes you are entitled to your money back, the lawyer would then write a demand letter in an attempt to resolve the issue without the expense of involving the courts. If that was unsuccessful, then you would need to determine what the next best step would be, with the advise of an attorney. It might be arbitration pursuant the the contract, or it might be filing a civil complaint with the court.
If you would like to set of a document review with our office, feel free to give me a call.