How should I handle this situation, while wanting to continue working with this potential future buyer?

Business wise quickbooks or any number of others are probably better for the situation you describe quicken would work fine. 

As I stated before, I do not feel that taking total charge of a flip is in the cards at this time due to our current situation.

Here’s the deal:Purchase price - $900,000Down Payment- $500,000Balanced financed by owner $400,000Terms 3 years interest only @ 6.5%Earnest Money $10,000Due Diligence 45 daysClosing on or before October 23, 2018My situation: NO capital to invest, bad credit.

Also, what if I write a letter to the bank that has it about my situation?

I think you'd have to evaluate your own situation and make that determination. 

Maybe you could send some scary demand letter from a lawyer to hopefully deter them from filing suit against you for the unpaid charges but it is not a great situation especially since you are out of state. 

With them just selling his mothers home, its not uncommon for people in that situation to pay up bills in advance, especially if they know they're a bad money manager and would be tempted to spend it on something else.

You will be in a far worse situation if the tenant turns out to be slummy.

How does owner financing help the situation?