would there be addendums? Should I be concerned, or is this a normal part of a bank owned home sale?

A few weeks ago I heard about President Bush signing something to help homeowners avoid paying taxes on their short sales. Banks would issue a 1099 when a short sale was approved, and be taxed on their short sale savings. I need a link to read about that story, please. Thank you !!

The seller is in financial difficulties and reached out to short sale the house at the beginning of the year. Presented all of the hardship paperwork properly and has been very agreeable up till now. We have been under contract for 5 months with back and forth updates and bank appraiser visits. The bank has finally agreed to sell the house and we need to have the final P&S signed. The seller has refused and says they have filed or have begun to file for bankruptcy and plans on keeping the house. Do we have any recourse at all?
Purchase and Sales. And nothing has changed no new addendums have been added. Just needed a clean updated final purchase and sales agreement finalized by all parties with the bank agreed upon price.