No it is not legal, but unfortunately many unscrupulous lenders request that buyers do it anyway. Green Tree is notorious for doing this. Typically, the listing agent will have to escalate your case to a higher authority in Green Tree to see if anything can be done to remove this requirement. Hopefully it will not end your deal, but it is a very delicate situation. Your agent should always ask which bank(s) the short sale is being handled by before entering you into a contract. Most realtors know inherently which lenders are the most difficult to deal with beforehand so that the buyer is prepared.
Nicole Lindler
Prudential California Realty
310.694.2288 - Wed May 16, 2012