I have a bit of a dilemma - I started the FHA short sale in Equator with Wells Fargo & we've gotten as far as the appraisal being done, negotiator assigned but they are requesting a written confirmation from 2nd lien holder (CalFHA) that they will release their lien, prior to issuance of the Approval to Participate in a pre-foreclosure sale program or any formal written approval of short sale offer. This is typical and didn't seem like it would be a problem but CalFHA says that without the Servicer-Approved Short Sale agreement from Wells, "we are unable to proceed any further" with them. The CalFHA loan, btw, is actually a "loan" for Keep Your Home California which provides mortgage assistance to unemployed home owners up to 9 months. If they don't sell their home for 3 years after recieving the loan, it is forgiven. If they sell the house before that, they are required to pay it back UNLESS it is a short sale. 

I am stuck in limbo hell as neither will budge, demanding that the other must provide short sale approval or payoff demand first but each seems to be restricted by their own bureaucracy. CalFHA says "Our guidelines for providing short sale payoffs come directly from CalHFA and the US Treasury."  And Wells Fargo is referring to HUD/FHA guidelines.

Does anyone out there have experience with this and perhaps could offer some words of wisdom? Worse case scenario is we are stuck and the homeowners are forced into foreclosure and the 2nd will receive nothing.  I mentioned that to both 1st & 2nd and neither seems to care.