Water saturation appears significant, but not long standing. I see stains, but little/no damage to the joists or subfloor. I also don't see mold. Did you check for it? By now, you must have finshed the demo stage. Did the floor give unusually anywhere? Was there any evidence that the drywall was saturated? If so, I'd take it out for as far as you can see staining.
My home was built in 1959 and until this summer, had the original cabinets. This summer, we completely gutted the kitchen save for the drywall. I had a blast! However, we hired professionals to hang the new cabinets. Yeah, I was going to do that too, buy my wife knows me better than I know myself. Order one extra though, and make it your 'cabidor'. I have some experience there!
I have not finished demo yet, mainly because I got worn out and it got to be too late to make a lot of noise.
The real damage seems to be limited to the particle board underlayment that had been used on top of the subfloor. It basically turned to sawdust that I had to shovel and vacuum off the floor. I have been walking on the subfloor the last couple of days and it feels pretty solid. I still anticipate getting rid of the current subfloor and replacing it. I have yet to get into the wall to check for involvement that way. I suspect I'll find some staining there too.
AS for mold, I haven't tested for it. I think there was a little bit, but once I got the vinyl peeled off and stripped the floor down to the subfloor it seems to have quit smelling as bad and is pretty dry.
I was ready to just suck it up and pay for it out of my pocket. Now I've got all kinds of people telling me I should sue the listing agent, inspector, and previous owners. I am going to find a real estate attorney and run this by him/her.
I appreciate everyones comments! It's kind of my way of thinking out loud and exploring my options.
