Hi Barry,
Sorry to hear your deal has gone south on you after all this time. Let me address a couple of your comments but first I want to say I am NOT an attorney and this is NOT legal advise. You may want to check with an attorney for your legal rights. I'd highly recommned Bryan Dunklin in dallas. I have his number if needed.
It's not uncommon to have a subject to deal get sold and the original balloon payment timeline get extended for a varity of reasons, the market, lenders, but normally buyers are not ready credit wise to do their re-finance. I have extended several to accomidate the excuses. The one concern I always have is, the longer it goes on the more chance a buyer may run into problems and end up in a similar situation.
With regards to your specific situation, if I understand correctly, the current owner/buyers are paying the seller (your buyer that you sold to) and NOT the mortgage co or a third party servicing company. If this is true, and if the current owners/buyers don't want to lose the house, you could either have them pay a 3rd party servicing company such as August REI or have them pay the mortgage co directly and STOP paying the seller the entire amount, but they do need to pay him his profit/difference (if any) in each of the monthly payments (i.e. if the owner finance mortgage pmt is $1,200 to the Seller and the pmt to the mortgage co is $1,000 they should send the seller just his $200 and pay the $1,000 to the 3rd party servicing co and let the 3rd party servicing company pay and DOCUMENT the payments have been made. There is risk in this also however based on what you have said I think if you set this up correctly, get an attorney involved for proper notifications to the seller I think you can resolve this and get it behind you.
As a follow on to all this, I'd be talking to the current owner/buyers about credit repair guidance and re-finance for all the above obvious reasons.
And my last comment/questions is, I'd love to know this company name so I can be sure to stear clear of them. I can't tell you how many owner finance buyers I have spoken to and work with that have experienced the same type of business management. Im selling a home next week to a buyer that has been paying payments to an investor for 9 years and $50,000 later they just lost what they thought was their home. Makes the business tough for the good guys like us but with the right system in place, testimonials, references the bad can be overcome and we can still help families that NEED our help.
Best of luck on this. Hope this helps. Let me know if you have any questions.
Have a great day!
Tim