That must be so frustrating. I have never been in your position. All I can suggest is that you consult a lawyer who specializes in real estate transactions. Just like doctors, lawyers have specialties. Good luck.
We have our house on the market and close on our new house on Monday so I can empathize with the stress you're under. It's quite possible their mortgage company just got hold of the inspectors report and won't extend the loan. I'd try to get more information from your Realtor on what exactly the situation is. I do have to agree with others that I'd be hesitant to buy a house before this issue is resolved.