At no time any of this money will be go into any one of your accounts, if that happens you’ve forfeited the exchange. 

And Generally how long does the TOPA process take, is there a 'if no response in 60 days then rights are forfeited'?

Do you mean “forfeited” property?   

We’re willing to forfeit the $1,000 earnest money.I understand the sellers may threaten legal action, but at this point, I would rather risk being sued than proceed with the purchase of this house.

Not mentioning that although it is possible not everybody forfeits their properties, most people pay their taxes.

Plan B would be to just forfeit the housing allowance and live on base with crushed dreams.Any advice is appreciated, sorry again for the length! 

It is stated in their previous lease that if they didn't give a 30 day notice they would forfeit their deposit.

If you don't, you forfeit the 5% from your bidding account.  

If they fail to move in, the forfeit the Holding Deposit.

In a case like the example above, a strong claim may be made that the use was commonly known and continual if the claimant maintained and used the property frequently.Therefore, if you find yourself in a situation like the example discussed above, you need not forfeit your strip of land to your neighbor notwithstanding an erroneously placed fence if you can prove the elements of adverse possession.