If you cannot get them to postpone the auction, I would advise your buyer to attend the auction if they want the home. As long as their purchase price is going to cover the loan amount (or maybe a little more) then they will just be competing with the bank (which they are doing right now anyway).
Another option is that if the property is sold at auction. The State of Michigan allows a 6 month redemption period. So what you do it get the money from your buyer (needs to cover the redemption costs), payoff the amount owing and then transfer the deed to the Buyer.
What happens in a short sale is the normally the lender will bid on the house the amount that is owed on the mortgage plus late fees and legal fees. This is called an full bid. Sometimes, the lender will bid at sheriff's sale an amount that is much less than what is actually owed on the mortgage. If this is done, it is called an "underbid". In both cases, however, the homeowner still owns the house for the next 6 months. This is called the redemption period. If the lender bid the full amount, short sale negotiations can continue. If, however, the lender "underbid", the homeowner could sell the house to you directly without lender approval.
Hope this gives you a little better understanding of the process. If you need a better explanation, feel free to contact me.
Kathy Persha, Realtor
GRI, SRF, CDPE, CIAS
Nextage Advanced Realty