What is the best course of action? 

Buy the house and loan her the money. 

Financing might be a challenge.I would recommend consulting with a attorney, loan officer, and CPA to discuss your specific situation and determine the best course of action. 

In any disputed court action where the court resolves the dispute and determines the prevailing party, the court shall also award to the prevailing party its reasonable attorneys’ fees and costs and the non-prevailing party shall be liable to the prevailing party for payment of any court awarded attorneys’ fees and costs.

I know one person that did this recently and was able to negotiate no money down and 12% over 5 years but this was probably in the mid west.

Taking action isn't only investing in real estate.

His God complex and giant ego won't allow him to reflect on the damage he's done  keep in mind if the SEC detects a serious issue and one that could harm investors right now they have the power to take emergency action and shut them down.

The predicament we are in is the property is not in the condition to charge that much for rent and we would also leave a lot of money in the deal once we refinance if we cannot get in there to fix it up.

I never took action and started doing deals.

IE motivate them for money.