Your friend's interest in the property / partnership is part of his bankruptcy estate. 

If the Grantor is refusing, the other option may be a declaratory judgment action which asks the court to declare the deed valid.If you elect to take the deal to another title company you may want to disclose to them the issue you're having. 

I’ve actually been involved in creative real estate cases (suing and being sued) in Small Claims court in two states multiple occurrences, in Superior Court in two states multiple occurrences in each state, Bankruptcy Court (which is Federal Court) multiple occurrences, and 9thCircuit District Court of Appeals (which is also Federal Court) multiple occurrences.

Given how good the terms are, I'm surprised to read that they will work with someone that had a bankruptcy or foreclosure more than 3 years ago with a sufficiently compelling letter of explanation along with supporting documentation. 

Why not change that to 6 months, live in the property 6 months per year and declare the home your primary home?

Remember, they can always refer themselves😊Now, make it a goal to call at least 5-10 of these people EVERY day and ask a MAX OF THREE off the list below of who they know that:Just inherited a homeHad a loved one pass awayIs behind on their mortgage or tax paymentsHas a relative that can’t take care of their house anymoreHas a house they’re having trouble sellingIs facing bankruptcyKnows a probate attorneyKnows a bankruptcy attorneyetcWhy only three off the list per contact?

bankruptcy ?

Remember, they can always refer themselves😊Now, make it a goal to call at least 5-10 of these people EVERY day and ask a MAX OF THREE off the list below of who they know that:Just inherited a homeHad a loved one pass awayIs behind on their mortgage or tax paymentsHas a relative that can’t take care of their house anymoreHas a house they’re having trouble sellingIs facing bankruptcyKnows a probate attorneyKnows a bankruptcy attorneyetcWhy only three off the list per contact?

and 2) would I have to declare rental income if the agreement stated that he was paying the mortgage (instead of rent) until such time as he could get a loan to purchase it.Advice and comments welcome!  

@David Ashworth given Florida's bankruptcy protection laws (please verify with an attorney) you may be better off paying off your primary and max leveraging the investment property for asset protection.