Foreclosure under contract with a bank that does not own it

[Dale Williams]

I am seeking advice and wondering if anyone else has been in this situation.  I put the funds together to buy my first fixer upper investment property. After eight months of searching i found it and have it under contract.  It is a City bank/mortgage foreclosure serviced by ServiceLink/ black knight.  Per many people's advice i decided to use my own attorney and not go with the free one offered by the seller (good move it turns out).      

My attorney did the title work and found that City bank has the only lien on the property but they do not own it. The lady still owns the property yet City bank has it for sale and had it on MLS etc.

     My attorney called city bank and  they confirmed they do not own it.  So, now i have a signed contract with city bank for a property they do not own.  

       This property was for sale before it was "foreclosed" and the lady wanted what she owed on it (more than it is worth). The foreclosure might be in process but it is not final. I think all parties involved want it sold. I'm thinking maybe this is a short sale opportunity or will the bank just wait until it is foreclosed and let me have it per our contract? 

It seems like city bank messed up big on this one? For a bank to put a house under contract that they don't own seem criminal. People including myself were trespassing in this lady's house when we being shown it. She was moved out and it is vacant so she might not care, but it still does not seem ok.