The parties may object to the lender getting tax returns, financial status and other confidential documents for a short sale. But the lender can insist because the lender doesn't have to give up its foreclosure rights. PMI company wants to avoid indemnity on PMI policies by having foreclosure go through. VA and FHA guaranteed loans have similar issues but government employees tend to have softer attitude than private industry does toward party being foreclosed on. VA allows six months for reimbursement of arrears.
Government has formal programs to accept short pays.
Watch out for veteran problem of losing VA eligibility. Remember federal government loans can get deficiency judgments after foreclosure in situations where other loans cannot under California anti deficiency statutes for purchase money foreclosures involving seller financing or third party financing of one to four owner occupied residential, and virtually all private sale foreclosures. Document what the broker and buyer are doing and are not doing in short sales. You are not solving or guaranteeing clear credit or dealing with tax consequences etc. Seek a contingency that seller can take a better offer before short sale loan approval.