Pending Purchase with no C/O

[Bill Chase]

Hi folks,
Been lingering around for a bit and find the forums quite interesting.
I've got a potential issue with a house I'm trying to buy and I wanted to see if there are professional or even semi-professional thoughts on the subject.
The house is a moderately great deal. In the course of my due diligence I discovered that the house never had a final inspection, nor was there ever a Certificate of Occupancy issued. The last inspection notation was final electrical, which passed.
The house was completed in spring of 2004 (near as we can tell) The building dept says they were swamped during that period of time and there is no way they can go back and issue one after the fact.
We've laid the whole mess at the doorstep of the bank (since they are the current owner) and we're waiting to see how they plan to deal with it. In the spirit of full disclosure we also advised the lender and the title company so the bank can't try to sweep it under the rug.
We're fully prepared to walk if they throw it back at us unresolved. It's somewhat entertaining for me but my wife is a wreck. There should be no emotion allowed in real estate.
Any ideas on what might happen from here?
Thanks