Thank you all for your answers - it was very helpful and appreciated.
What I'm hearing in your question is this; the amount that Wells was willing to accept (according to the acceptance letter) as a Net, was $7K over your original offer, but the Seller's Agent told you that the Sale Price needed to be $28K over your original offer for Wells to take it. I know it's not what you want to hear, but I think those were the same numbers. You see, the amount the Lender will accept is a net number AFTER all costs of sale (Seller's Closing Costs) have been subtracted. The Seller's Closing Costs include Realtor Commissions (both sides), Real Estate Taxes (past & present), past HOA Fees (if applicable), Recording Fees, Title Insurance & Title Fees, Fees unique to your local and any additions liens on the Title. These Fees must be paid. If the Seller is unable or unwilling to pay them, the Closing won't happen unless the Buyer (you) choose to cover them. It sounds as though that was what happened in your case. It's unfortunate that was not explained better by the agents involved.
Keep in mind that it's rare for the Seller to have funds to contribute to the Sale. If they did they could avoid the Short Sale and save their Credit. This is after all a form of Foreclosure and carries some hefty penalties. The deficiency the former Owner(s) could be responsible for will include all of those Closing Costs, plus any Late Fees, Attorney's Fees and Past Due Interest. The numbers get big, really fast.
To answer your question about it being Legal; I'm not a Lawyer and the advice I will give you is the same I give all my Clients; a Real Estate transaction is Binding, with Legal and Tax consequences, so consult a Lawyer and/or an Accountant for how it may impact you.
I hope this helps!
Dave Cox GRI, CNE, ASD
P.S. I agree with Faun, this is not a transaction for an inexperienced Agent.
That being said, Faun is correct in the fact that the listing agent works for the seller's best interest and may try to get the highest amount they can for them, but usually they just go for the net the bank has asked for.
I repeat for others who may be reading this thread, it is vitally important for BUYERS and SELLERS to have a highly EXPERIENCED SHORT SALE BROKER (preferably as their Agent) for any transaction involving a SHORT SALE. Short sales carry many potential pitfalls and there are relatively few brokers who are truly qualified to participate in these transactions.
Your question does not provide nearly enough information to be able to answer it with any certainty. Did you have a broker representing you as your Buyer's Agent? If so, have you asked your Agent what happened and what response have you received? The thing I find troubling is that you are on a public venue asking for help after you purchased a home . . . this is why it's vitally important for buyers and sellers to have an experienced short sale broker working for them in a short sale. Short sales are a completely different animal from a "normal" real estate transaction and they require a specific set of knowledge and skill. From what little I can ascertain, the seller had a good broker advocating for him/her, but perhaps your broker was less experienced or simply less informed on this particular transaction. Or perhaps you just don't clearly understand what happened. Either way, you need to go back to your own broker and ask these questions. Review the contract paperwork including your original offer and any amend/extends, counterproposals and/or secondary offer(s) you signed. If you still don't understand the answers you receive by reviewing these documents and speaking to your broker, ask to speak to your broker's manager. If you are still in the dark, you can always speak to an attorney.