Money --and the lack of communication around money-- is the largest cause of divorce.

Even if you did not add endorsements for service line or sewer system replacement if the damage is part of a covered peril it's possible your insurance will cover some or all of it.What were the communications at sale regarding the water problem?

Having documents confirming communication with several lenders and refusal of a loan, you have grounds for returning the deposit.

It is not impossible, but building a team that can communicate effectively is going to be key to getting this one done.Good luck!

What @Chris Seveney said.As soon as they make these kinds of accusations, inform them that henceforth all communications will need to be through your attorney. 

Try to take the emotion and risk out of it, and think about the numbers.   

I think it's good they are communicating.

Define, "investor-friendly" agent please.In our experience we've found that +95% of agents only have experience dealing with owner-occupied transactions - which are mostly EMOTIONAL decision based.You can ID these types of agents easily by asking them:1) If they are RE investors themselves.

If she was communicating with me, then she wont be out on the streets.

Also would consider getting a POA from the seller for their loan so you can communicate make payments on it.