Been down this road with other folks I know. I'll first agree with what everyone has said so far, and now add more.
Most states require disclosure. Hopefully, yours does because if you can have it proven that the previous owners knew of this, then the Disclosure Form is your proof they lied (or their proof that they didn't). If your state DOESN'T require the Disclosure Form, then it may be harder to prove fraud but a good lawyer and a thorough engineer should be able to do that job for you. If you can find out how long the previous owners were there, that will help your case. If they were there only 3 months, well, it's possible they didn't know (and they didn't do the repairs). Also, whenever you go to buy a house, even if the state doesn't require Disclosure, ASK for it anyway. If you don't get it, then run. In PA where I live, it's not law. But in 1994 when we bought our home, we asked for the Form and got it.
Now, about the home inspection. Granted, folks don't buy homes as often as they buy cars these days. And in buying cars (like homes), the more you do it, the more you learn. I want to share w/you some tips that will help prevent you (and possibly others so don't feel like I'm picking on you personally), from experiencing some future mistakes. UNLIKE buying a car, in buying a home, you spend a heck of a lot more $$$ on it. SO, it's in your best interest to hire a real estate attorney lawyer as part of the home buying process. Get your OWN; not the banks or the sellers. Those lawyers are most interested in making sure their clients interests are being looked out for; NOT yours. In getting your own lawyer, you save yourself retention fees should you need to use him/her. Plus, you already have worked w/them and they're familiar with your purchase AND with buying homes in general, AND all the anguish the 'process' can bring (like yours). When it comes to a home inspection, ALWAYS hire one that's ASHI-approved (American Society Of Home Inspectors). The Society has requirements and standards for their members. If I'm not mistaken, one of their many requirements is that the Inspector have experience in the trades, home building, engineering, and/or the like. I don't believe they'll approve someone who, like me, use to write computer programs for a living in a previous job!!! (No, I'm not a Home Inspector.) Again, ASHI has standards. Also, I recommend that whoever you chose to do the inspection that you get your report ON-SITE at the time of the inspection! This way, you can review the results and ask your questions right there. You don't want to wait 3-10 days for a report! The inspector, ethically speaking, should NOT offer to make repairs although it is very common that they give estimates-for-repair. If he/she tells you the roof will need to be redone in, say, 5 years, ask for an estimate in today's cost. (Usually, an ASHI-approved inspector does this automatically.) I think it's OK that they recommend 2 or 3 roofers too as long as you ask if they have any 'association' w/them, and they say, "No." My inspector allows me to call him to this day, 5 years after we bought the house, to ask questions on the inspection if we have any. Ask the same of your ASHI inspector.
As for 'who' to go after, I'm sure your lawyer will know who. Your action better include the real estate agent, the seller, and the inspector. My philosophy is: If you're willing to fork out hundreds of thousands of $$$ over 15 - 30 years, then if you can't afford (or are unwilling to spend) $1000 to retain a real estate attorney and an ASHI inspector, then there may be consequences to bear. DON'T hire friends unless you want to possibly lose them. (THey should understand.) I do understand that you're in a tough spot, and you may have even done all I've suggested. (This is more as a general heads-up for other readers.) But it is what it is. Just as an aside, a very good friend of my wife's and her new husband just bought a home this past June. I recommended an inspector but she said her husband was getting a very good contractor friend to look the home over. I explained all to her about what it could mean to NOT have the home formally inspected by a qualified professional. She relayed the message to her husband who kept his $250 inspection fee, and hired his for-free contractor friend. Well, 2 weeks ago, we had hurricane Floyd. She told me that their sump pump dumped the basement water just outside their home's foundation and it ran right back into the basement because of the 'negative' grading. Her husband's contractor friend didn't look down when he was walking around the house, and for sure won't be paying for any damages! I wanted so bad to tell her what I thought about her husband not 'hearing' me! But I bit my tongue. They saved $250 and it will now cost them about $3500 to have their basement fixed because they don't have (couldn't get) flood insurance. A qualified, ASHI-approved Home Inspector would have noted this on their report, and they would have at least been aware of the probable problem with the grading. In the least, an ASHI Inspector has a check-list, of which Grading is one of them. It kills me when people like them don't use common sense. Again, who's looking after YOUR interests here?! You can be that at EVERY house closing the bank does, there's a lawyer present. AND the bank does hundreds of closings a year and they STILl have legal representation. Why? (Again???) Because the bank wants to be sure someone is looking after THEIR interests.
I do wish you well. When you 'situation' is getting some steam, do post up for us regulars. We'd love to hear what you did so we can share your learned info with others AND keep it in our own heads for our own use. Hopefully, I've helped you (and others) a bit. DO help us (and others) and share with us later on what you have learned. My best to ya and hope this helps.