title company sent escrow money back to seller?

[ditaloca]

What is the name of your state (only U.S. law)? Arizona

We purchased a home, closed 3 months ago. There were some issues that delayed closing. Eventually we were able to close. Title comapny called 2 weeks after closing, the check they sent to homeowner insurance company was returned. The policy number was incorrect, because of the delay in closing the insrance company had to issue a new policy, this was explained to title company and they said they would re issue the check with proper number. We assumed they did. Last week we received a cancelation notice from insurance company saying we had to pay within 2 weeks or policy is canceled. After many calls we find out title company didn't issue a second check, they claim they couldn't because insurance company didn't send them a request, and by law they had to return money to seller whom they say is gmac (weird cause on deed it says freddie mac) title co said they asked gmac to return money but gmac won't. Noone is willing to do anything. Title company blames insurance company and vice versus in the meantime we are out 525.00 is this legal?
Why didn't either company notify us? What recourse do we have. We have title agreement showing how money was to be disbursed, that 525.00 was to go to insurance company, it came from sellers 3% contribution to closing costs. Can they do this?