Clever
It might help for you to proceed on two paths.
First, these are tenants, not buyers.
If they failed to pay rent, talk with a real estate attorney about having them evicted, take them to court for past due rent. The eviction will show up on the background report, it will be very hard for them to rent a new place with an eviction.

Second, so far the deposit goes, the only person that should be advising you needs to have seen the paperwork. Generally if all contingencies have been removed then they loose the deposit. It's not anyone's fault that they no longer qualify.

However, if all contingencies have not been removed, just because they are a pain does not automatically mean that anyone is entitled to their deposit.

Also remember this: when you get advice from agents on forums on the internet, they are not all from your area or state. There is no standard required short sale addendum in Michigan, and all purchase agreements vary here.

Did you contact the lender who wrote the preapproval to find out if they are still qualified?

My advice remains the same. You need an attorney.

Hello,

Sorry to hear your situation that is very tricky and unfortunate. Best is to take the help of the attorney who is expert in real estate matters. Preferably instead of general attorneys there are legal experts who does only real estate cases. They would charge more, however you can work with them on some payment arrangements.

You have to resolve quickly before you hit foreclosure. Once the issue is resolved let us know we can see your house and if it fits our criteria, we can close within 5 business days - so you can get things done before foresclosure hits as it would affect the credit history.
Ron
http://www.youtube.com/TBMHomes

I certainly agree with the fact that you are in the wrong forum to gain expert advice pertaining to your situation. Yes, you need an attorney. However, I can offer you this based on your story.

If you read the short sale addendum carefully it states that either buyer or seller may cancel the purchase agreement if either party is not satisfied with the lender's terms of approval. Even after waiting all that time and obviously behaving as if they were truly motivated and qualified to move forward with the purchase of your home, the buyer can still elect to cancel based on what the lender's final terms are.

But because they acted as if they were still going to purchase your home by moving into it under the premise that they would own it was not behaving in good faith with the spirit of the contract. Four months after your original acceptance in May would make it a September occupancy date, I assume.

Your biggest issue now is removing those people from your home if you are to sell it before a foreclosure proceeding should occur. They are damaging you every day that they remain in the home as your market time continues to run out. I don't believe that anyone has the right to prevent you from the necessary actions you must take in order to successfully sell your home without the threat of foreclosure. Those people may be in for a rude awakening as far as the amount of damage they are causing you. Five thousand and back rent is nominal in comparison. Good luck and I'm so sorry for you.

Diane Wheatley, Broker
diane@moveupproperties.com
(909) 981-5400

Unfortunately, no one here can help you without seeing your contract, and even then, they should only refer you to an attorney. You're well past the point of having an amicable discussion with the other parties. Seek counsel immediately.

Short sales are notoriously challenging. Unfortunately they are a big part of our market right now. Your situation is difficult.

At this point you need a lawyer too. If they weren't in the house, it would be easier. As a seller's agent I would not really want to see a purchaser in the house before closing in any situation. There are risks for the buyer's too, like the short sale not getting approved.

If they no longer qualify for the financing, then the purchase agreement probably allows them to get their earnest money back, but nobody here has seen the PA to know with any certainty.

Unfortunately, you are probably going to have to go to court to resolve this.

Good luck.