I'm actually not too surprised to see this kind of thing happen.  I just finished a title a couple of months ago where a prior owner sold the same piece of property twice to two different owners, each of whom assumed that they were the proper owners of the property!  I assumed that given the nature of this title problem that the deal would never close & that if it possibly ever did that there would be all kinds of confirmatory deeds & release deeds & whatnot to clear the title.  Of course I was wrong - the deal went through a couple of weeks ago - with title insurance coverage over the messy bits. 

On your bad foreclosure I would think they would have to start all over again & redo the entire foreclosure, but it's likely that they won't.  Maybe they'll decide that an affidavit of some sort will clear things up.  Sad.