The owner said that they are filing a lawsuit against the lender for illegally foreclosing on their property. What are my rights/options?

It is going to depend on the specific situation. If they have a valid reason to fight the foreclosure, then you may want to work with them to get the sale rescinded and get your money back as quickly as possible. Otherwise, if they do actually file a lawsuit you will need to hire an attorney, though you may want to let the lenders attorney take the lead to minimize your expenses.