Bryan,Here are the 3 main options to consider:1) Custodial self-directed IRA, lower upfront cost but watch out for transaction and asset based fees, have to go through custodian for every transaction, might be inconvenient for certain investments. 2) Checkbook IRA (aka Checkbook IRA), eliminate transaction fees, higher upfront cost because of special purpose LLC, but long term will provide savings and most importantly a convenience of having checkbook control over your retirement assets. 3) Truly self-directed Solo 401k, requires self-employment activity or small business, the best option if you qualify.

Sounds exciting and, in my opinion, it might be more productive working outside the box. 

Stewart Title recommended a $250-300 product similar to an O&E "owner & encumbrance" report that they could then insure... does this sound good?

It makes the transaction very tedious but it's an additional $7,000 you can use towards your down payment which seems like that may help.

I will second @Linda WeygantShe is located in Colorado and was a BP podcast guest.In regards to your tax return - if you have an out of state business - you may be required to file a resident return in Colorado and a non-resident return in the states that your business transacts in.

PM is a high volume low profit product to go along with but/sell brokerage services.

@Adam Widdicombe There are a few companies that provide a quality product.

In my state the only way it can be disbursed is with a signed agreement agreeing to the release and distribution by all parties involved in the transaction, or by court order.  

You will want to consider the transaction fees, annual fees, speed of processing, customer service and knowledge. 

She won't be making any money in the transaction, I would be purchasing it for the amount of money she owes and then I'll be making the mortgage payments myself.