Construction Loan on a Tax Sale Home

[Clayton Miller]

I've got a problem.  I bought a house from a wholesale company about 3 months ago.  They bought the house at a tax sale and then sold us the deed, "free and clear" a week later.  So my partner and I began work on the home all the while filing for a construction loan to fix it up.  We've made it through the majority of the steps and now the underwriter says that the company we bought it from missed a step.  They are asking for a quiet title suit or a deed from the tax debtor.  Can someone explain to me how they were able to buy and sell this house without going through all of these steps and then tell me what in the world to do?

I'm a little worried that we got ripped off.  Is that possible?  I have the deed with all of the correct signatures so I don't understand what has happened.  

thanks for the help,