For example, a house is valued at $250K, and I put $50K down and get a mortgage for the rest. It burns down, and the lot is valued at $100K. The bank is not going to go through with the mortgage. Heck, I've signed some papers and then hired an inspector, which would be largely pointless if I couldn't back out.
That's right because there's a clause in your contract that states the property must be in the same condition as when you paid your deposit. There are a number of these get-out clauses in a standard contract, but all are based on reasonable conditions, none of which involve "change of market value".