Wolves’ executive chairman Jeff Shi personally flew to Spain on Sunday and opened talks with Lopetegui on Monday to succeed Lage, who was sacked after the defeat to West Ham.
Negotiations have been ongoing since, with agent Jorge Mendes involved, but family issues have seen Lopetegui reluctantly turn Wolves down.
His 92-year-old father is unwell and Lopetegui has chosen to remain by his side rather than move to England.
Wolves had made the ex-Spain boss their number one target and he was prepared to take the job, despite only recently being sacked by Sevilla himself.
There was some concern that he may not be ready to jump straight into another job after a difficult spell this season with the Spanish club, however that is not the reason he has turned Wolves down.
Instead, the personal and professional timing was not right due to his father’s ill health and Wolves will now turn their attention to new targets this week.
This is the second time that Lopetegui has turned Wolves down, after Fosun were ready to make him their first Wolves boss in 2016.
Fosun approached Lopetegui when they bought Wolves and sacked Kenny Jackett but at the last moment he was approached to take the Spain national team job and he rejected the Wolves job. He last two years with Spain before joining Real Madrid, where he was sacked in the October of his first season. Lopetegui took over at Sevilla in 2019 and enjoyed three top four finishes and a Europa League triumph.