With 6% in commission and 2,300 left over in closing costs, it could be a full payoff so, i'd not spend all my energy on the short sale aspect.The only one that stands to gain in this is you, (to make a few bucks for yourself) and having her follow through with HAMP then doing a lease option with you, could put her into trouble with the Feds if she lies about her intent as it relates to the property and occupancy.

I'm about to purchase my first home period, the plan is to live in it for a year then start renting it out (I got USDA Financing, hence the occupancy thing).

I have 100% occupancy on mine and high demand for rentals.

I do not mind bouncing back ideas, and helping look over numbers with you.I know that with an FHA you will be obligated to be an owner occupancy. 

If the seller has to change to a non-occupant owner, that will change all the numbers for taxes and ins.

We average close to 90% occupancy rate(counting the 17-21 days we use is as vacant).  

I read often that people will buy properties using FHA or conventional as primary residences using low money down, then after the one year occupancy, purchase another and repeat. 

It's a very small deal.The duplex you are mentioning will have less breakeven occupancy than a quad will.

I am hearing that lenders will require 2 years of occupancy on a rented home before they will approve financing for the next home.  

This is in Pennsylvania..IE; what's involved in the purchase process and how the occupants can affect it, as well as eviction if necessary to remove them after closing?