We had the right to cure and I had worked out a deal with BOA to service the the first as a Junior in possession.. 

They wouldn't just take possession of the property so long as it was worth at least the amount of the debt?

VA cannot list the home until they complete the foreclosure and take possession.

You have signed over possession rights to this property to her.People rarely think of it this way, but giving a lease to a tenant is VERY similar to giving a deed to a buyer.

But of course, living in Pueblo would present issues commuting to work and also, from what I've seen and read about, possesses less potential for growth, has higher crime, and will demand lower rents.I'd love to get a MFH  but they're prohibitively expensive in CS and I don't want to get over-leveraged for one, assuming I could even qualify. 

Your contract is clear on early termination, but they have not taken possession, so it will depend on the laws in the jurisdiction. 

I'm guessing as soon as I take possession, I should switch over the power and water. 

Squatters usually end up with trespassing and various other charges (criminal mischief, burglary, theft, usually drug and weapons possession charges or they have outstanding warrants for other stuff/ are on probation).

Is it normal to have private money funds get wired to individuals business or personal account since he already has possession of the property? 

You advise your tenant as follows: Your rent is for possession of the premises.