Urgent short sale question

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This will consist of a rew questions. I will be VERY grateful if someone knowledgable could guide me through it.
Scenario: House worh well over $500K, in foreclosure, owner says she owes $385K total. I negotiated purchase price for $420K and found a person who wants my contract, so I can assign it as soon I I actually have it. I prepared a contract and went to meet the owner to sign it, mobile notary public with me. We sit in the kitchen, ready to do our thing when the postman brings the payoff letter the owner requested from lender. She opens it and gets blue in the face. She owes total of $419,500. She will not sign the contract at $420K, because this will leave her only $500 and she counted on $35K. My rpofit, on the other hand, depends on getting the contract at $420K, because I already discussed the price with my assignee.
Question: can the buyer negotiate short sale with lender and if so - how to go about it? Whom to contact? She called her bank and they told her to call the f/c lawyer who runs the case now. Would this lawyer be the person to talk to about short sale? If not - who? What bank department. Her lender is way out of state, so visiting in person is out of question.
Also - can she give me the power of attorney so I can negotiate the short sale for her? I ned to mention that I do not want to act before the lender as a potential buyer, I need to know if the lender will short sale for the present owner (or a representative of such).
How long does it take?
How to go about this? Can someone guide me through it, please?
Thank you,

Wesley
123help(at)excite.com