She held the note in exchange for us paying more than we should have for the house.

You will more than likely have to pay for them, and I’m assuming when you purchase them, there is some very very small writing somewhere on their website you did not read that says something like, "in the event this document is rendered void, or unenforceable we shall not be held accountable for any action by any purchaser, third party"...you get the picture.An attorney will save you time, money, and in the long run, save you from headaches. 

I had the guarantor write a guarantor letter claiming they would be held responsible if anything.

In cases where you don't make bail or are held without bail and charges are dropped there is jail time served with no conviction. 

I see no reason to limit myself b/c I can drive to each area in less than one hour.I've always owned condo's from my youth that I held onto more as a forced savings mechanism than an actual investment.

This must have been there when the previous owner put down the floor.Can the previous owner be held responsible for the repair, and if so, what do I need to do?

Lots of work and some money to be spent to get from point a to point b, however I've held back a bit due to no having deep pockets to weather the storm so to speak while getting the building stabilized.Thinking it would be a good idea to see if I can schedule another sit down with the floor owner who had visited with me before.  

The 12 months seasoning with cancelled checks means he as held the property for 12 months and can provide cancelled checks to show the previous note payments.

The title company is now telling me that I get a pro-rated amount ($109) for the period of time I held the property and the seller gets the rest. 

It appears so; here's a quote from this link:"When making an offer on a short sale the proper procedure is you write into the purchase agreement that your deposit check is to remain UNCASHED and held either by the buyers agent or the escrow until the short sale lender approves the short sale.