You should consult your agent since they will know the details of the situation but the bottom line is the sellers will not be able to pay to fix the septic or else the bank will likely raise serious issue with them since they have already defaulted on their mortgage and therefore owe the bank money. The bank will definitely not pay for any issue found on the property (hence it being sold as is) ... Seems the only way to potentially remedy the situation is for you to pay to fix the septic on your own, prior to closing, which is a risky investment if you don't officially own the property yet. If you are trying to finance, you are right, a failed septic will be an issue because they will probably not loan you money of a house that does not pass the Title IV. Unfortunately you are learning one of the big downsides to short sale (and foreclosed) properties. They can be very complicated, and take a lot of time and energy only to find out the deal may not happen after-all. Again, consult your buyers agent or real estate attorney and see what advice they can offer based on all the details of your deal.