Property is not Investor insured so denying short sale?

I have a short sale with WF and I was told this morning that the Investor (Deutsche bank) is denying the short sale due to it not being Investor Insured. The WF rep stated that the Investor did not want to take the property back and would not participate in any liquidation programs, I explained its a short sale, the bank doesn't take the property back. I asked for a manager and got the VM.... Anyone ever heard of this?  

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