Here is my take. I'm not an attorney or an agent but I am in IL. The "contingent" contract, is that a contingency for you to sell your home first in order to buy this short sale home? When the seller accepted your offer, he may not have been in default. There is nothing wrong with selling your house for a loss and paying the bank what you owe them. However, if your home didn't sell and the seller didn't get any back up offers and the clock keeps ticking and he keeps getting further and further behind financially, his situation may have changed. He is now desperate. But I would think a bank approval for the sale would be a material fact that changed the terms of the contract. Look at the dates on your contract and see if "time is of the essence" is in the performance section. That will let you know who might be in "breach". And of course, contact your attorney.
Finally, to determine if there was a lack of disclosure, search the recorder of deeds to see if there was a "Les Pendens" on his record and when that occurred in comparison to your original contract date. If you are in Cook County, you can do that by the pin number of the property (which should be on the listing sheet and the contract) or by the seller's name. The web address is: http://www.ccrd.info/CCRD/il031/index.jsp
You can usually find out what he paid and how much is mortgages are for as well.