We have signed a contract on house. Paid for home inspection. One week before closing, seller reveals to agent that bank is foreclosing and he.....

The listing agent should have known about the existence of the lien(s). The seller should have told the whole truth to the listing agent. It is possible that the listing agent did perform due diligence by asking the question, but the seller may have been economical with the truth. The listing agent is suposed to calculate the likely cash-to-seller proceeds of sale. If that figure was a negative, the deal should never have been ratified and it should have gone to a short sale. The public record at the courthouse does provide that information at no cost but it is time-consuming.

Banks often do not listen to individuals even though you are a good buyer as evidenced by your contract, your good faith and the time passed since you wrote the contract. You have every right to be very angry at both the above individuals.

Legal representation will get the foreclosing lender's attention: If your title company employs an Attorney, he/she could contact the lender and perhaps find a way around this. You have not mentioned any details, so the price and other contract terms would be important. Hopefully, the foreclosing lender will agree to come to terms with you through your Realtor or Attorney. That would not cost you anything, but you should also interview a Real Estate Attorney and get ready to go into action yourself.

Ask your Buyer Agent Realtor to get on this right away. If the listing agent is reluctant to do anything, perhaps the Broker/Manager can. See the full article here