Even if it's the seller's "bad" for not paying off the mortgage at closing, I believe the lender's recourse still includes foreclosure of that mortgage, which means the new owners are the ones to lose the house.
Of course the lender could pursue the mortgagee (the original borrower), but the lender's most likely chance of recovery, or partial recovery, would probably be in foreclosing. Sad and unfortunate, but likely.
Seems like this sort of issue comes up a lot in those "kitchen table" closings, where no title search or other precautions are used.
I'm sure a whole can of worms can be found in this one!
But it goes to illustrate what both of us have suggested: get a lawyer involved!
You should SEEK A LAWYER! Because you may be at risk to loose your home.
Only a lawyer will be able to offer you a true insight on your situation after checking all documentation.
If you can't afford one at the moment , go to your hometown city hall and ask for help!
The agents have given pretty good responses here, and I would suggest always using either an agent or an attorney (or both) when buying real estate, and always, always, always close through a title company.
Here's what it boils down to: if you have ownership of the property and the mortgage was not extinguished at closing AND there was no title guarantee, you're probably hosed.
You really need to talk with a lawyer at this point.