Legally, she still has ownership interest in the property and could sue to claim it, and you would probably lose.

I need to know if I have any options here other than to risk losing my 3% earnest money deposit and the most amazing house for my family.My wife and I made an offer on a bigger house and we were very fortunate that the buyer picked us.  

They are writing into their contracts that they will cover up to $30,000 of the difference between appraisal and contract amount if the house does not appraise.AND THEY ARE LOSING!

The lender could care less if you need to account money for repairs etc so you'll need to confirm those amounts and act accordingly. 

I think with family the main goal should be to not lose money, so be prepared to "waste" your time if the deal is a break-even deal. 

If you hold out for the long term the average might be good but it you succumb to the herd's and get scared to sell off you can lose a bunch of money.What kind of doctor makes a difference with how much they make.

So, its losing its value as you hold it.  

As long as they are paying rent, I couldn't care less if anyone is in there at all.

If you are an illegal lender, you can lose your shirt!

And you certainly wouldn't want to lose an otherwise good friendship over it.