This is a tough one but not uncommon. Unfortunately the approval by the sellerâ€™s lender(s) is a contingency of the contract, and if the seller cannot gain their lenderâ€™s approval, or for some reason the seller cannot meet the conditions of the short payoff approval then the sale cannot proceed.
In this case Iâ€™m afraid this sale is probably going no where fast. So itâ€™s probably time to move on to another property.
These contingencies in a short sale do exist in order to protect both the sellers and buyers involved in such transactions. Just imagine if you were in the sellerâ€™s position, unable to keep your home and forced to sell due to financial hardship. And in order to avoid a costly foreclosure on your record you decided to sell the property even though you owe more against the property than what a buyer was willing to pay for it.
Then after coping with all the unpleasantryâ€™s of selling your home (in which you were not going to receive any of the proceeds of sale), open houses and strangers constantly coming through your home, you found out that in order to be free of your mortgage debt your lender was forcing you to carry a personal note in which you must make monthly payments over the next 5 to 10 years on a home you no longer own.
This wouldnâ€™t sound like the ideal situation to me personally, but then again, depending on the type of mortgage and property being sold, it may just be better than the repercussions from a foreclosure. Hopefully the seller is receiving both legal and tax advice before they make their final decision to cancel the sale.
And, by the way, these same contingencies are also protecting the buyers of short sales. If the seller is never able to gain short sale approval but the buyer makes his/her earnest money deposit into escrow, then the buyerâ€™s deposit could possibly be tied up for an indefinite time frame (while the seller attempts to gain short sale approval) until both the buyer and seller agree to mutually cancel the contract.