Now that the condo associations have tightened up procedures and qualify, prices reflect market value.

I will go check out the properties and see if we can tighten up the numbers.  

If it is a rental that she is current on and doesn't have some big hardship then probably not a good candidate for a short sale but if she just wants to get rid of it then she might bring money to the table for the privilege of not owning it anymore.If the place needs a lot of repairs and some bigger houses are going for as little as $75K (BTW $75-120K is a BIG range, you need to tighten that up a lot) around you then it is very likely that it is not worth $40K.How motivated did she seem to be rid of it?  

While I am not really familiar with the Memphis market, I am seeing similar tightening of wholesale inventory is taking place in many other markets.

I may be wrong, so please inform me.Personally, I wouldn't rent to family because I would see it put a strain on the family relationship eventually.

The state tightened up the regulations just for the frauds that want to play games with peoples lives and probably their most valuable possession. 

I redid the numbers on the report with:- 30 year loan- 220k purchase price- 100k rehab costs (I believe I could find a way to save 20k on the rehab if I really tighten my purse strings)downpayment would be about 20k (3.5%)Now, the property cashflows at ~$350/month, plus $400/mo that is set aside for property management (that I would get since I would manage the property)So, free housing for me, plus $700+ in monthly cash flow if I could make those numbers work.What you're saying about the 203k limit throws a wrench in my plan though.

Our relationship is extremely strained as you might imagine, and communication is not as pleasant as it once was.  

You may be able to get the bank to tighten up there numbers a little.

Since you're concerned with liability to tighten your standards and get great tenants.This can be and should be a Win-Win~Tim