Can a lawyer charge a fee for short sale offers that fall through?

The answer is generally yes, but the lawyer must act in an ethical manner in doing so.  That means that the lawyer should have given you a retainer agreement in writing that states the terms under which the lawyer would be entitled to a fee if the short sale fell through.  And the fee must always be "reasonable" - in general meaning that it must conform to what other lawyers doing the same work in the same circumstances would charge, and that it reflects the effort expended by, the expertise of and the risk taken by the lawyer.