This is a matter for agents or attorneys since you are describing your actual situation. Consult them for best advice.
What I will contribute is that several conflicting points have come into play. 1) The seller can not just cancel the contract with you. 2) The sellers lender has to approve your contract and depending on how your agent filled out the contract terms regarding the shrot sale, it is impossible to provide meaningful advice. 3) It depends on the contract was exeuted and where you are in the stated contract timelines.
If you have a financing contingency and you do not have final approval, then you need to request an extension for financing. The seller does not have to grant the request. It sounds like there is a back up offer for cash. If they deny your request for an extension then the contract becomes null and void due to not meeting the financing deadline. At that point the seller is free to accept any back up offers that may be out there.
(1) Your loan is not yet approved and will not be able to fund BEFORE the trustee sale,
(2) The bank IS NOT willing to extend the sale date,
(3) The property will go into foreclosure because of your inability to close before the trustee sale,
(4) The seller has an all cash offer that CAN close on time â€¦
(1) You are technically out of contract,
(2) The seller can go with the backup offer,
(3) The seller will be able to avoid foreclosure.
I know this is very frustrating, but you also have to consider the other side. If their only hope of closing the short sale is to go with a cash offer, then, if I was in their shoes, Iâ€™d be looking at the same option. From a listing agent perspective, weâ€™ve had several short sales foreclosed on because we had loan issues at the very last minute, the bank was unwilling to extend any longer and we DID NOT have a backup offer to go to. If weâ€™d had a cash offer waiting in the wings, weâ€™d have been able to stave off the foreclosure in all cases. No one wins when a home is foreclosed on â€“ if the bank is unwilling to extend even five more days, then, in reality, the cash offer seems to be only way to keep from being foreclosed on.
It doesnâ€™t seem fair, but unfortunately, banks are in control and can do whatever they want to do. Itâ€™s one of the sad facts of the current marketplace.