The future of Rose Castle is now uncertain as it's to be put on the open market.
The Church of England currently owns the building but announced plans to sell it.
It gave Rose Castle Foundation, which planned to turn the property into a centre for for faith and peace, two years to bid on the property.
But Church Commissioners have called the first offer unviable and are now inviting other buyers to bid on the estate.
In September, the Foundation said it hoped to secure a deal for the historic Rose Castle near Carlisle before the end of the year.
It had been given two years to pull together a bid to buy the building, without facing any competition from other parties.
It had hoped to turn the castle in Dalston, which has been the home of the Bishops of Carlisle since the 14th century, into a centre for peace, and planned to keep much of the Grade 1 listed building unchanged.
However, Church Commissioners have deemed this first offer, made by an anonymous donor on the foundations behalf, unviable.
And now, the property could be bought by anyone as it's being put on the open market.
The Foundation says it remains committed to fulfilling its plans.