Meaning you will probably end up losing the house due to needing to sell or being foreclosed on.

@Michael Babin with the limited numbers you have given you will only lose $104 per month. how I calculated it. 50% expense= $2025 per month  left over for PI. [email protected]% = $2129.

As someone said - first thing to do is get her affairs in order if you haven't already and have DPOA's set up for finance and health if 2 people will be involved or just one for all affairs - definitely consult an attorney and get everything in writing - if your family goes and invests her money and you lose it or there are not checks/balances and someone is essentially embezzling money you're asking for trouble and can cause her all sorts of issues.  

When things go wrong, in the case of an owner-occupant losing employment or having some other financially distressful event, how will this be handled?

The lender typically will not re-trade a loan with a capital markets broker as they can stand to lose a ton of business versus a buyer calling for a one off loan.

I want to know if I will lose the 3.5% down payment if these 12 SFR are in my name when I go to get the loan.

Next, if there are proceeds left the sponsor gets a split of the excess portion. 

Am I definitely going to lose rent value going from cramped 3 to nice 2? 

I'm sorry to hear this.If I were in your shoes I'd start telling myself that I'll be very lucky if I only lose 2 months rent. 

It basically says that any loan made in excess of 10% APR is usurious.