The Dishonest Seller, and a Nightmare That Won't Go Away!

This time I am at a loss, suppose I could use some advice from my fellow professionals. Here's the story:

My dear sweet customer from last year sent me a referral for some folks about 3 months ago. A pre-listing package was sent to the sellers, a seller's appointment and interview was accomplished, a listing agreement entered and marketing efforts begun.  Several open houses were held, printed advertising, website advertising, office and inter-networking efforts were made. During the listing appointment, a seller's proceeds was totaled, including the FIRST mortgage amount.

We were shooting for a contract with a December closing date, which we actually accomplished after two weeks of negotiations. A nice profit was going to be made. The first time home-buyer is thrilled.. and very, very prepared! how nice! Now, we are three weeks to close, all buyer home inspections were done, the buyer's appraisal was done, the WDO inspection was done. All loan processing is complete and we look like we will have a successful sale.  WRONG!!!  Upon initial title search, not 1, but 3 open mortgages were found on the home,.. one as late as March of this year!  They total 135% loan-to-value!  Houston....we have a  problem!!  All to my complete surprise,..of course!  They buyers maintain they thought they were getting "business" loans from these banks,.. and did not realize there were mortgages attached to their home as a result.  Their signatures are, however, on each mortgage. The lender on the third,.. a national bank now being bought by Wells Fargo,... issued the third mortgage with no appraisal, no title search, or income verification! Imagine that!!

So thinking as we do.. I began to problem solve. How can we remove one of the home equity loans. *Ding*, the sellers bought a building in a neighboring county, supposedly remodeled it,.. and instead of selling, they are going to lease the building. So, I ask them specifically, "Do you own the building, ..do you have a mortgage on the building." I was told, "no."  SUPER news... perhaps we can get a note, attach it to the building they purchased for $80K! This just may work!  The phone calls start,.. the bankers are crunching the numbers,.. yes..the second lien holder is willing to do this...but wait,...........no, not really.  They just discovered that there is a mortgage on the business building,... (and they are the lien holders!) Funny,.. did they forget making the loan?  No.. now we are done. But,... no.. one more call, let me see how much that building is worth! So, I call the commercial broker and get a BPO,..suddenly a "glimmer" of hope! The building is worth 185,000!  Yes.. so then we can do a loan and still be under the 75% LTV requirement!  I worked the entire weekend with the sellers, with the lenders, with the selling agent. I missed an annual event that I hold dear while dealing with this matter. I'm still in the mindset,.. I am the Realtor... I must help these folks, I must.

I'm thrilled,.. I call the second mortgage holder...she now begins to run it by underwriting.  Minutes later,.. the call comes..."Houston,..we have ANOTHER problem." It seems Mr.and Mrs. Seller have been late on a few payments...credit scores are below "C" ratings. Not workable. A quick call to the third mortgage holder.. the one who did this to begin with,.. "Can you help us?" "Can you roll your loan over to the building with equity from the home with NO equity?  No,... not possible..Sellers credit is too low. IMAGINE THAT!  They are just now looking at it!, what?  However,.. they will not cooperate. They would rather loose their money...than secure it in a property with equity!  I am shocked, I don't care how bad their credit is, it just does not make sense. Do ya think that's part of why the economy is in the shape we are in?

Rest In Peace sweet contract. The roller coaster ride that I have had the selling agent on has now come to a stop, against a brick wall. Termination is in order.  Now,.. I have to try to recover the buyer's expenses...and my inner struggle begins.

MY QUESTION IS:  Do I sue for commission also? I have every right..the sales agent has a right to be paid. We did all that was required by our agency agreements and listing contract.  Mr. and Mrs. Seller are now considering filing for bankruptcy. They claim ignorance,.. however, he teaches at the college. i am not buying it anymore..nothing coming out of thier mouths has been the truth.

All day I have toiled with what to do...the fine line between empathy and disappointment, aggravation and understanding, with ethics and reputation.  The fact is.... I don't understand at all. I don't understand how humans can blatantly lie, commit fraud not only  to lenders, but also now to someone trying to help them move to the next chapter in their lives.

For 7 years now, being a Realtor has given me great rewards in helping my customers.  I've never been cheated or lied to, never had to question the "do unto others" rule I try to follow. However, today I decided that I had to protect my broker, other brokers and the perception of a first time home-buyer on the other end of all this, who is devastated and confused. 

I'd kinda like to know what the rest of you would do in my shoes. Feel free to post your thoughts! I am still dumbfounded!