The following are my opinions - I recommend that if this progresses any further, you hire a real estate attorney.
It is generally assumed that anyone can cancel at any time, however, there are consequences based on the stage at which the transaction is at the time of the cancellation. In the case of a seller cancelling after the buyer has met all obligations according to the contract (RPA-CA Item 14, page 5 of 8), there are a couple of things to consider:
(1) The buyer has the recourse of seeking compensation for actual damages. This could include all expenses incurred to date for inspections, appraisals, loan fees, etc. It could also include cancellation fees incurred for moving expenses and, should it necessitate the cancellation of another transaction (ie. your existing home), any fees and/or penalties incurred. If you had to travel for inspections, etc., then travel expenses could potentially be factored in. You have to be able to demonstrate that you have actually been harmed financially. While this is certainly not a desirable outcome, it does happen from time to time.
(2) A case can be made that, once the buyer has met all obligations in the contract, the commission has been earned by both agents involved in the transaction. This is based on the listing docs, to which you have no access, but your agent can certainly put pressure on the listing agent and seller to deliver a commission should the seller cancel at this point in the contract.
Let me specifically address some of your questions and/or comments:
Q: The seller called my agent to cancel.
A: In and of itself this is disturbing - the seller has hired an agent to represent them and should be corresponding with their own agent, not yours.
Q: Then requested her agent to renegotiate the price, then cancel, and is now claiming mental instability.
A: There are a couple of things here: first of all, the seller cannot renegotiate the price at this point. Second, I've actually had a seller cancel because of mental instability - in our case, in was very real and the seller was beginning to have a verified nervous breakdown. However, it occurred BEFORE contingencies were removed and had nothing to do trying to change the terms of the contract.
Q: She's not yet provided the homeowner disclosures
A: I have a question here myself - if the seller has not provided or signed the homeowner (seller) disclosures, then why have you removed your contingencies? It would seem there is material information in these disclosures that you need to see and approve.
Q: nor has she signed off on the contingency removals.
A: It is not necessary for the seller to acknowledge or sign off on the contingency removals - they simply need to be received by the listing agent.
Q: Do we have any recourse if she actually stalls long enough to jeopardize our funding?
A: You can attempt to recover damages if you can prove the seller is deliberately stalling and if you have been genuinely damaged as a result.
Q: We are concerned the tenants may not be aware of the terms and haven't yet been notified of their need to vacate. What if they don't?
A: They will be in breech of contract, and you will have the recourses stated above.
Again, I need to stress that these are my opinions and are not legal council. I recommend that you hire a real estate attorney if this cannot be easily resolved.
The issue is that the Seller has not signed off on the Contingency Removal
and not provided disclosures. It will all come down to whether you and your agent performed in
a timely manner.
Best to get in touch with your Real Estate Agents' Company Attorney.
Carl covered all the points of the contract.
You will need to have your agent continue to communicate with the sellers agent - quickly and often. If you really want this house you might, as Carl mentioned, consult an real estate attorney. Make sure everything is documented.
Best of luck.