Legal Question in Real Estate Law in California

Tell them that you have a binding contract that allows you to select the lender so they are in breach of the contract if either one prevents the sale from occurring and the realtor is subject to censure from the department of Real Estate if he tries to steer business in such a fashion. There is no benefit to the seller, unless he is taking money under the table so is committing a fraud as to his lender who has agreed to a short sale only on condition of the seller making nothing from the sale. If they breach the contract, you have the option to sue for either specific performance to get the property or damages. Their demand is already a breach of the contract. You can also point out that the contract provides for the payment of reasonable attorney fees to the winning party and it is clear you will win [the attorney can claim fees higher than want they are charging you and let you have the difference; I normally charge $150 per hour; if you need my help at any point, I would be happy to assist you]. So that he does no damage to the property, you should also tell the buyer that you are surprised the realtor would act so as to get him into trouble. Also, even if you went along with their scheme, the loan likely could not be funding by the 30th when escrow is supposed to close.

not proof read

Go with Mr. Shers' answer; he's covered the question well.

I agree. If the specific lender was not required as a term of the contract, then you are under no obligation to use the lender of their choice.