A mortgage company has the right to accept any offer they so desire ... it's not a matter of legality. And, though it may seem they have accepted a lower offer .... it may have been the most "complete" & strongest offer .... there are other terms to consider - proof of funds, closing date, concessions, etc. The short sale process has no "governing" rules & can be a diffficult process to understand.
What can you do? I would recommend contacting an attorney as well as a tax accountant. Both professionals will be better suited to analysis your complete situation and provide proper advice.
I wish you the best.
Rock Solid in Real Estate,
Prudential The Property Place
Life isn't about waiting for the storm to pass .... it's about learning to dance in the rain!