Legal Question in Real Estate Law in Illinois

Is this a short sale? If so, the seller probably owes the bank more than 129,900 and that's the lowest amount the bank is willing to accept.

No, it's called a "short sale". Assuming your contract is written properly for a short sale, there should be a contingency for bank approval because the bank will take a hit and it is not legally required to, so the bank controls the deal. On the other hand, how much do you think the property will be worth in a few years assuming the economy finally stabilizes? If this is a question of how much you can afford today and $119K is the top end, then your frustration is perfectly understandable but again the bank has no obligation to you to take a hit. But if you can afford more than $119K and you're speculating because this is such a great deal, then you need to consider this something of a gamble and if it's still worth it, maybe the bank will settle somewhere in between and you'll still get a deal.

Actually, this sounds like FHA. And the lenders want the property to appraise for hire than the purchase price for PMI paid up front as well as closing costs.