They can decline you for any reason - and very often do just that. Don't pay them any money. It won't be any guarantee that they will process a successful short sale. They are just trying to get you to cough up some of the money you owe them for back payments. You are doing a short sale because you canâ€™t make the payments. Seems logical to everyone â€¦ except a bank. Go figure.
If they will not cooperate with your short sale, then, unfortunately, foreclosure is the final option.