Buyer Backing out on 26th day after waving all contingencies

[Abhishek Maloo]

Hey folks, 

This is my first question on biggerpockets. I am selling a property in Bay Area California. Buyer wrote a clean offer (waived all contingencies) on day 2 of the contract. 
buyer was supplied prelim title report and all disclosures about the property.  While going through lending process - lender asked for inspection report of “indoor air quality” in the property. I got to know that day that there is a environmental restriction placed on the title (which was disclosed in the prelim title report and provided to the buyer before he went into the contract).

Buyer sent me the cancellation request and asking me to refund him total EMD. He paired up with a lawyer and trying to prove that I knowingly concealed the air quality issue.

Honestly - I had no idea about this environmental restriction. When buyer’s lender reached out for the report -  I still wanted to help the buyer and ordered a air quality inspection whose report came out to be “All Fine”(no issues reported). 

Buyer however, did not wait for the air quality inspection report and sent me cancellation request already. 

I have wasted 26 days in the market due to this transaction. I would like to not release the EMD and use it for my damages/loss. I have yet not accepted the cancellation request as well.

Any help on how to move forward on this would be appreciated ? I am already planning to seek legal counsel.