Wow, annadgu, sorry to hear of your situation. Sounds like you have a couple issues here...
First, it is illegal, based on the Fair Housing Act, to require a buyer to use the seller's lender to finance the purchase of the home. They can however, require the buyer to pre-qualify' with that lender. Check out Jay Thompson's blog on this very subject:
Second, did you have your own real estate agent representing you? What did they say about the sellers canceling?
If you want legal questions answered, you really need to get the paperwork to a real estate attorney to review.
Please feel free to contact me directly if you have any further questions, I'd be glad to help.
All the best,
Roswell Moore, CMPS
Certified Mortgage Planner
We are a Direct Lender, Mortgage Bank where we originate, process, underwrite, fund, AND SERVICE our loans, in-house, with FHA (starting at a 580 score AND still only 3.5% down), FHA Streamline refinance loans (NO minimum credit score, NO appraisal required) Go Green rehab loans, HomePath, Investor Friendly (10 financed properties), VA, VA Refinance loans (NO appraisal required on IRRRL loans), USDA loans, Jumbo loans, Conventional loans, plus, we allow Escrow Hold-Backs!