Rental nightmare- What would you have done?

I had the opportunity to work with some clients who were looking for a rental.  After showing them several homes, they settled on one.  After submitting all of our info, the listing agent told me that the owner decided to go with another applicant.

Fast forward one week...I locate another house that they want to rent.  Meanwhile, the listing agent of the first house calls me back and told me that there was a mistake.  The owner does want them as tenants.

Fast foward to closing the deal...Everybody is ready!  I pull up to the house and am greeted by my client's mother.  She tells me that the house doesn't look up to par and that her son can back out even though he and his wife signed a lease.  There was such a big commotion that I don't even have all of the words to describe her behavior.  She told me she works with lawyers, but I later found out that she works for the government.  Nevertheless, she is going line by line of the lease, disputing things. 

As we go for the walk-through, the mother made a 2 page list of everything the owner needs to fix, within the next two days.  The listing agent was clearly angry.  I was shocked and disturbed by her behavior but I know how to keep my cool.  At the end of the day, she wanted the listing agent to sign the list, saying that all the repairs would be made by May 1st.  She was upset that the agent declined to do that. 

This woman was one of the rudest people I have ever met and she wasn't even my client.  Her demands, legal threats, and rudeness cost us this deal.  After talking to my client about this list of demands, they scaled it down to only asking the owner to remove the carpet.  I reminded them that the only people who needed to like the house is them.  I also tried to remind them that they are not buying this house, they are renting it.  I even told the mother to "step back and let them make their decisions."  There are plenty of other renters who would lease it as-is. 

ONE DAY BEFORE MOVE IN...The owners agent calls me to tell me that the owner does not want them as tenants!

They had changed all the utilities to their name, rented a moving truck, given notice on their previous residence, taken off of work, etc. and had no place to live.

In the end, I think they allowed his mother to kill this deal.  What do you think?  What would you have done?