Hello Jmeowerz. I am sorry you have encountered this unfortunate turn of events. I am not sure how the existence of a second mortgage could have gone unnoticed for so long. I can't say that I have ever not known how many loans I had to negotiate.
As far as your question is concerned. I personally am not a fan of early occupancy, but your situation is unique. I am assuming you gave notice on your current residence in reliance on being able to close escrow on your new home, and the only reason why you are not able to close is because of the delayed discovery of the second mortgage. I am also assuming that you are represented by a real estate agent, which makes it inappropriate for me to suggest a solution other than that your agent's broker should contact the listing agent's broker and find a solution and work this out. There is no way of predicting how long it will take to secure the approval from the second mortgage. There is not even certainty that it will happen at all. The way I see it, having this second mortgage to deal with also means that the approval with the first will have to be renegotiated unless a third party will pay what it takes to get approval from the second mortgage. Even if the payoff to the first will remain the same, the first will still need to re-approve because the estimated closing statement on which the first approval was based will have to be revised to reflect the payoff to the second mortgage.
What does your agent have to say about all of this?
Good luck with that.