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The general rule is that all contract rights are extinguished once you take title at closing. The exceptions are in cases of fraud or misrepresentaion. The seller is obligation to inform you of any adverse condition in the premises. Here, if an expert can testify that the condition had to have been in existence before the contract, then you can sue the seller to get your money back.
The warranty applies to rental property only. Unfortunately your gripe is with the seller...the bank won't want to know about the problem. Get a lawyer and see if he/she can negotiate a settlement without a suit to save money.