Did the breeder give you a guarantee against genetic defects? If not, you may be out of luck. A reputable breeder will work with you, but they usually also give you some sort of written health guarantee. Contact the breeder and see what he/she has to say.
And I'd suggest getting a second opinion from another vet. How expensive the surgery is depends on where the testicles are. If they're in the inguinal canals, rather than the abdomen, they're easier to get at. At 12 weeks, there's also the possibility that the pup "pulled them up" when the vet examined him, and they aren't really undescended at all. And if the testes are indeed in the inguinal canals, it may be possible to manually manipulate them back down, over the course of a few weeks. I did this with one of my own males, and once they were down, the neuter surgery went off without a hitch.
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