You can refinance into a FHA 203k or like @Jason Wray mentioned you could even use a Fannie May homestyle renovation loan as well!  

Well I think he was planning to pay it but it wasn't long overdue so he certainly wasn't expecting a lien to be placed on the house one day prior to sale.

It may sell at a loss if someone else knows that you are trying to get rid of it because of a bad tenancy, but if you can get a well qualified tenant in there, then it may be worth keeping at this point if you can make it get some decent cash flow.  

(Well it was all good info, but that is what I can focus on first!)

This is why so many people earn large sums of money quickly (lottery, sports, entertainment, etc.) and end up broke.Take Dave Ramsey's Financial Peace University.

We negotiated a deal with the owner for 20% Equity, we are responsible for infilling the community as well as property management (which we also get paid separately for).

It sounds like a single family house where you will be living in the house(personal use).Therefore, you may not be getting the tax benefits you think you are.Consult an accountant.I am not sure why your sister would agree to this as well, she is losing $170,000 in this transaction and she faces the possibility of you increasing her rent.You also have to charge market rent or close to market rent or it is all deemed personal use.

According to your numbers, I would say to keep it as a STR but as a few others have said, look at different vacancy rates as well management fees.

I might sell some units as well. 

Well said by @Matthew Becker!