Last but not least, if I buy the business and operate as an absentee owner (not involved in daily operation), is a license still required?

I haven't yet contacted the mother and don't know if I should get involved at this stage or try and stay out of it. 

I can definitely get an equity partner involved.

You do not want to be their (test subject) for a trial run.You need to go over what if's and how expensive it would be to foreclose and what the timeline would be to get the property back and costs involved.

How much you need asset segregation within the IRA LLC framework would depend on the dollars involved.

If so, at 15% APR, your loan is usurious.The penalties for making a usurious loan can range from jail time for loan sharking (extremely unlikely, unless you're involved in organized crime), to forfeiture to the borrower of all interest owed, to payment to the borrower of triple the amount of interest collected the year before the borrowed brings suit.

You need to involve her from the start.

However, one of the worst real estate decisions you can make involving a single family home is to over improve it.  

It's possible with a longer time on market, they may be open to a lower price.2) being sold by owner - may be more opportunity here. price may be over/under market value.3) foreclosure - bank is motivated to sell. may be willing to sell under value especially in a slow area.based on this, it seems like best bet would be to pursue houses sold by owner, foreclosures, and listings that have been on market for a while. there also is a whole other approach of finding motivated sellers - drive bys, bandit signs, etc. 

I know it's highly unlikely that anyone with much common sense would do but I'm willing to bet there are some out there that have done it.