More than likely with this situation lender MIGHT just seek all cash buyer would not require lender approval.
Probably direct question to your mortgage broker off lender requirements for you to close. If not what you want to hear best move on to another home
Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
The previously mentioned suggestions are great. I suggest gathering up as much information you can: how much it will cost to cure, how long it will take to do the repairs, finding out how your lender handles these situations, finding out from your real estate agent how much comparable homes sell for given the new information, and making a decision on whether or not to attempt a re-negotiation after weighing the pros cons.
A common tactic is to offer a property below market value taking into account the defects, but not disclosing them. If this tactic was used re-negotiation or staying in the deal may be a good option. If the seller flat out lied it may be better to walk away because you do not know what else the seller may have lied about.
Unless you're already getting the house for a really great price, the bank may, the bank may not lower their price. Short sales are always AS-IS sales, but it never hurts to try to ask the bank to lower the price.
Realtor Since 1996
Easy way out is if you have a mortgage contingency, then let them reject it.
I can't tell if there are real estate agents involved by your post but if there are, that's their job.
If you don't have agents or a financing contingency, you may be required to buy the place even if you can't get a mortgage.
I suggest you then find a residential real estate attorney that does this kind of negotiating.
You said it was after the home inspection that you discovered this. Was it the home inspection itself that uncovered this? If so, it would depend on exactly how your inspection contingency (did you have a buyers' agent and did they write one of these in?) was written to use this as an "out" if you wish.
As far as negotiating with the sellers' lender to reduce the price by the cost to correct, you can always try, but of course as you probably have already experienced, getting an answer to each question can take days or weeks! All lenders are different, so while some may not do this, others could, I guess. Good luck, Ron!
When you write an offer on a short sale that is usally the price you are going to pay. I have had properties go down in value and then requested the price be lowered because the short sale took so long to approve. If you saw the garage before you wrote the offer and it was a living space then you agent or you should have thought to do some discovery as most garages that are living space are without permits. I don't see the bank giving you a credit for that. Try. I have seen banks give credits on short sales because during the short sale process the property had the utility meter stolen and the buyer couldn't get a loan on it because it happened after the offer was written but this was something that was there when you wrote the offer so likely they will reject it unless the garage was converted after you wrote an offer.
The Carrabba Group
Keller Williams Hollywood Hills