The contract with the intial buyer terminated if not closed by a certain date, UNLESS, there was a special provision in the contract. The title company should recognize this but your question assumes the only reason the 1st contract is terminated is because of the closing date. I would contact the title company (or have my realtor) and ask them what the real problem is in this case. They may share the problem and it might be more than you think. As for being the legao buyer, there is no such thing. You have a contract to purchase the hosue, and if the Seller defaults you can sue them for damages or to enforce. If they sell to another first then you may be out of luck. I would not do anything until I know exactly what is going on.
If the 1st contract is truly terminated, then you could always ask the Seller to move to another title company and start over there.
It depends upon whether the other contract is now unenforceable. It also depends, though, on what the remedies were available to the prior purchaser . If the prior purchaser could force the sale of the house to him/her, then there could be an issue. Otherwise, the only damages against the seller would be monetary. In other words, the seller would still be free to sell the house to you.
If the contract is truly unenforceable by the buyer, then, depending upon the terms of your contract, you would have the ability to close on the home. I agree with the prior attorney in the assessment to use a different title company if there is a problem. Although, you could have some issues if you have knowledge that a dispute existed between the seller and the prior purchaser. Again, this could be why the title company is wanting a release.
It probably wouldn't hurt hiring an attorney to hold your hand through the process if all parties cannot agree. At this point, the Seller could potentially have claims against you if you walk. However, if you stick around, then you may have claims against the seller if he cannot close. This is backup contracts are frowned upon. Additionally, the prior purchaser's contract probably should have stated if the seller had the right to enter into backup contracts.
The above statements are provided as general information and not intended as legal advice. Each matter has its own set of unique circumstances that cannot be adequately addressed without consultation. You are strongly advised to hire an attorney licensed to practice law in your state to represent you.
If the initial contract ceases to execute, then the backup contract should activate. The title company should know this, so if they are refusing to move forward, it is likely because there are circumstances to which you are not privy. You may call and ask if they will tell you over the phone, what they may be unwilling to put in writing, or you can hire an attorney to inquire and enforce your rights. Depending on how good a deal you have, and how interested you are in moving forward should determine if it is worth bringing in an attorney at this point. (although I would recommend having one anyway if you are a buyer because most real estate contracts are in the seller's favor, and the brokers normally work for the seller unless you have a specific contract with them.)
I am an attorney licensed to practice in Texas, Louisiana and before the United States Patent and Trademark Office. Laws vary from jurisdiction to jurisdiction and the above may not be an accurate assessment of the laws for your area. The above should be taken as general guidance and not specific legal advice. For specific legal advice you should seek a licensed attorney in your jurisdiction practicing in the area specific to your issue. The above does not constitute or establish an attorney client relationship. If you wish to receive specific advice about your legal issue, then contact my office to schedule a personal consultation.