The Sun says the sensational development comes after a stormy exchange between Real boss Jose Mourinho and Spurs chief Daniel Levy.
A meeting on Friday to thrash out a deal for the Croatian ace ended with Mourinho in a rage after Levy asked for another £2m at the last minute.
Now ex-Chelsea boss Mourinho is set to pull the plug and look elsewhere leaving Modric devastated.
A source close to the Croat said: “Luka is shocked by all of this. He is desperate for the move to go through and wants it sorted.”