How were the documents written? That is, on the sales contract, who did it specify would perform the repairs? Your understanding (that the purchasers would perform the work using the funds you'd put into escrow) is the way it's usually done. But it's possible that somehow it was written so you'd perform the work.
Is it possible that your husband was told that it was his responsibility to present evidence that the work was done to the satisfaction of the buyers? In that case, the settlement company may have been trying to say that it couldn't release any remaining funds until it was provided a statement that the work had been done.
Go back to your real estate agent and ask how the documents were written. Or examine the documents yourself; the answer should be there.... more