Ok, WOW! Thanks for the replies. Here is what we learned today

1) It is on city water, but not sewer....hmmm??

2) The neighbors did a survey in 2005 (we noticed they were renovating
when we checked out our house) so they should be aware of it.

3) The sewer lines are 2 blocks away, and it is not possible to tap in.

4) There is accurate recording of the easement, and it is a true
easement, whatever that means, going to find out tommorow.

5) The realtor that is selling the house contaced our realtor today and
told her everything that she already found out from the water
department and records, he even told her that "whatever it takes to
sell this house" (strange I know) it has been on the market for 1 year
Feb. 28th...

I will call a plumber and real estate lawyer today and find out more,
thanks again!