You can go ahead with the short sale as long as you are willing to pay off the balance owed to the 2nd mortgagee yourself--that is, so long as the 1st mortgagee's approval was not contingent on the 2nd mortgagee also accepting the offer. If the 2nd mortgagee's approval is not necessary, than if you can/will pay the $10k, you can do the sale; but if you are not willing to do this, and/or the 1st mortgagee's approval is contingent on the second accepting the deal, you might not have any recourse.