But the reason is that here in Texas most duplexes are two separate properties that are attached... and you cannot apply a single loan for two different legal properties.

Make sure you talk to a CPA and Attorney regarding all of the tax and legal aspects, someone who knows the state you live and will be doing business in.  

Congrats Jodi,Sounds like you got a deal and times it right Hillary ,I’ve been listening ok’ing at flood deals for a while now , from the deals that came my way the wholesalers are looking for 60-50% of the ARV , that doesn’t leave you much room for error , market correction or stigma of a flood home even in a good area .Take off 10% for commissions, legal  & closing on sale , you are looking at best a 12/20% return on investment .Now imagine if the mold situation comes or contractor goes over budget , you may be stuck holding a wet bag If your plan is a rental than at least you have a plan B in place For the best upside of 20% I’d stay clear Of course if you can purchase at 35/45 From ARV that may be worth considering IMO the Flooded homes are going to be in the market for a while - based on the fact many owners are just hanging on and not paying mortgages .

I know there is a legal contact in place but still worried of worse case scenario.

Where it gets legally weird is that her parents took over the apartment, as they were paying everything and the executors of her estate.

@Andy Bondhus I don't know the legality behind any of it but I do know that a lender can offer a program with specific features, in this case escrow, and if you do not agree with it, they do not have to lend. 

my parents have found a tenant to move in May 1 - however the remodeled basement is not permitted... can the tenant still move in while they wait for permits as long as we show the paperwork is in and now waiting on town to confirm??? 

Account ClosedWater lien has no legal right to the property, if you pay for it as a 3rd party.

Everything from funding permits, zoning to dealing with construction companies could be an issue. 

Are you going to be able to get a building permit without doing a proper conversion?