Depending on the rental rates, you would want to calculate ROE (return on equity) and you could potentially see what rents you are getting and refinance some equity out to use on other deals which would increase your ROE, technically lower your ROI on this property but would raise your overall ROI if used on another cash flowing property. 

If we can raise enough to pay cash & rehab, how is that drawn up legally?

If that is the case, you need to gather that WAY before learning how to raise money.

(Note to self:  time to raise rents!)

I am also guessing that since the original lender is a defendant in this, that the first load was not paid off...Not sure if this helps clarify any input, or just raises more red flags.Any comment / insight is welcome!

As a first time investor, these favorable terms raised a red flag. 

As a first time investor, these favorable terms raised a red flag. 

As a first time investor, these favorable terms raised a red flag. 

A lot of houses in the area are selling at a discount because they need to be updated or have their foundations raised to properly prepare for flooding.

So if I had $100,000 in a $1M raise, I would own 10%.