First time house hack and having to sue seller?!?

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Hello!

My fiancé and I bought a duplex for a house hack in pricey MPLS late this year. After searching through multiple places we found a place that needed some TLC but otherwise had a lot of potential. It’s a 1913 up-down duplex with a newly repainted and recarpeted basement. When our offer was accepted we read over the sellers disclosure (everything looked good) and brought in a home inspector. In the basement the inspector didn’t see any red flags. With it being an older home we asked the seller to confirm that there wasn’t no water issues in the basement. He confirmed there was nothing as stated in the sellers disclosure.

Fast forward two weeks after buying the property and we have a meeting with the upstairs tenants in the home. The upstairs tenants told us that until this summer the house had cockroaches and mice. They proceeded to also tell us that the basement floods and there is mold that the previous tenant complained about... My fiancé and I are shocked as NONE of this was noted in the sellers agreement and the basement issue was covered up with new paint and carpet. 

Fast forward a month after buying the property and the basement completely floods. We took photos and got a water mitigation company to come out and asses the damages. They recommended a complete water mitigation system to be put in. A week after mold starts appearing on the walls. We have revived a quote for mold mitigation. 

My fiancé and I are now looking into arbitration. The tenants upstairs got us in contact with the previous tenant of our unit. He is willing to speak with us however is worried that the seller may come after him if he helps us since his partner died and he wasn’t able to make the last months rent. We offered to sign a statement saying we would cover his suit if the seller came after him. 

As you can tell. We’re having quite a nightmarish experience with this duplex thus far.

My questions are:

Has anyone gone through something similar and has any advice?

Can the seller still go after the ex-tenant? We want him to provide us with as much evidence as possible but don’t want him to get sued by the seller in return. Can we sign a statement saying he would have to come after us?

We’re going into arbitration with quite a large number and we’re worried that we won’t get anything. Any advice is really appreciated. 

Thanks!