First, contact your lein holder, the bank or the financial company whoever loaned the money to you to buy the house. Tell them what you found out from the city. I'm sure they will help you to work things out together. Second, contact the real estate who handled the purchase of the house, and ask the agent to contact the daughter of the old lady. Just curiouse to ask, you guys knew that the old lady was the owner of the house, but you bought the house from the daughter, didn't you guys ever concern about the ownership, what if she's not the person to inherit the house after the old lady dead, then she didn't have the right to sell the house. If she was the person to inherit the house after the old lady dead, it might be not a big deal to your situation. It's probably when she sold you the house she didn't have the ownership transfered under her name yet after her mother's death. You guys can get back together again to clear up the mess. Otherwise, the purchase was illegal, and things can be turned out ugly. Anyway, contact your lein holder and real estate agent. and I wish you guys good luck!