Yes this is a tough one. I will be interested to see how it turns out. One thing that may help you out is the approval letters. If you have a copy of the approval letter from the short sale lender(s) that has the signature of the seller then that will help. If you read the short sale addendum then you will see there is text in that addendum that protects the seller in such a way that the seller does in fact not need to move forward even with approval. This may be the case where a lender demands a note to cover all or part of the deficiency.

I would agree with UR that you may want to try to sit down and work things out. What has probably transpired is somehow the seller has realized that they can continue to live in the house for free until it gets foreclosed on. They have decided that having a foreclosure is not any worse then a short sale with regards to credit history. Right or wrong that is where they are at. So… you can use vinegar or honey to try to get the home. It is a tough call.