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There's a 1st (Chase) and a 2nd (Key Bank) on the property. The sellers filed Chapter 11 (reorganization). Per court order, the seller's plan was confirmed. Chase filed for relief from stay and it was granted so they chose to move forward with foreclose rather than receive a settlement under the plan. We are currently in short sale negotiations with Chase.

Regarding Key Bank, once the plan was accepted, Key Bank’s lien on the property became a General Unsecured Claim, which is no longer secured by property of the estate. I understand this to mean that the property is free and clear of all claims and interests of creditors (except for the Chase loan which we are working on). Key is insisting that we either submit a short sale package for approval (not necessary because they are receiving funds through the bankruptcy court and they agreed to this) or submit documentation that the bankruptcy has been discharged. This also is not an option since the court won’t grant a discharge until all payments have been made under the plan and it could be years before that happens.

How do I proceed? Key has made 2 very unreasonable requests that are holding up the process. Can I just move forward with short sale negotiations with Chase and more or less ignore Key Bank? Since their lien is now unsecured, it seems to me that there is nothing further to negotiate with Key Bank. Help!

Thank you!