I would advice you to post how you can manage 12.5k project from an REO and why the extended timeline of Rehab Time.

The owner is 87, so trying to extend a balloon out any longer won't work for him, so I will need to get this under contract and wholesale. 

Let's see what really happens and if you extend your research beyond just posting.

Is there anyway to get those funds released somehow??

As an example, they added 2 cupboard sections in the kitchen which could've been great, except they didn't extend the counter top, so they were using laminate flooring planks to cover them that they had just placed on-top, not even clicked together.

Usually an property inspection occurs and if the progress is approved the next set of funds is released.  

Besides doing the title in an LLC name, does not release you from liability.

I think it's mostly a way for them to cover their a$5 (seller must warranty some items such as roof leaks and plumbing for 2 years after sale, by law), and I'm not sure that it really meaningfully extends the life of the roof.

In light of the nature if the issues, you should be able to convince the current custodian to release your account without any termination fees, since they clearly are incapable.  

It'll probably take the right situation for a person to extend a potential buyer credit on something they already own, but I know it is possible with little to no money down at that.