In California, you signed a contract that says the dealer has up to 10 days to sell the contract to a finance company. In fact, you signed a clause giving him this right. If the dealer cannot sell your contract to a finance company AND gives you notice within 10 days, he has the right to cancel the contract. Note: he loses this right on day 11.
If he requires you to return the car, he MAY NOT demand you sign a new contract. You have the absolute right to have your down payment (including trade-in) refunded when you drop off his car.