When A Seller Backs Out?

[britthood08]

What is the name of your state? Maine

I am in dyer straights here. Really would appreciate any advice anyone can offer. We signed a purchse and sale agreement at the beginning of may with intentions of a quick close to keep costs down. We would close at the end of May. We did a home and septic inspection, water test, apprasial, put down an earnest deposit of $500. Everything went fine.
(background) We have two horses that we currently board, the property had a 3 stall barn, we were ecstatic about being able to move them and not have to pay the board anymore so gave our 30 day notice where we board.
when the survey came back two weeks before we were going to close, we found out the barn is 3 inches on the neighbors property line. the seller "says" she got a building permit but has not produced it to anyone. she refuses to have it moved, taken down/ put back up, or anything else for that matter. she said she would give a 2000 dollar allowance towards whatever we wanted to do, but the estimates on either resolution were at least 8000 dollars. Also the town requires there be a 25 foot setback which she ignored when building the barn so it would have to be moved about 28 feet and that would change the entire layout of the property. Then she told us she was taking the house off the market and going to sell the barn alone, then put the house back up for sale without the barn. The seller is refusing to give back any of our money we have invested thus far which is about 2000 dollars. not to mention the fact that my horses are in desperate need of a home thanks to her we are going to have to pay outrageous fees to get them in somewhere on such short notice. Can she do this? I cannot believe this is legal?! Shouldnt she have known all of this before building the barn to begin with? I thought I had heard the term due diligence referred to?
Anyhow, I would really appreciate any help with my ridiculous situation anyone can offer. I do not want the house, I just want to get my money back and get far away from this crazy lady!

thanks