Should I just offer to assume the mortgage and not give anything to the existing owner, or would it be better to offer them something so they are not losing all of their equity as well as ruining their credit?

My fiance's mother lives up there and last we spoke she was concerned about her home losing value.

That way if you lose a tenant, you will be able to cover your minimum payments. 

If the lien(s) amounts are too high, at that time if I back out, I assume I lose my earnest money and also $2500 deposit with Homesearch.com?

Neither are my fault, but nonetheless - you are correct.Luckily for me, the property is worth more than 60k so I'm not terribly concerned about losing money on the investment at this time...

I didn't lose any tenants and it makes a BIG difference getting the additional revenue. 

Keep in mind Debt service needs to be filled in meaning based off my calculations they lose money every year. 

Diary entry One- I just spent a month doing the due diligence, aligning the management team, developing relationship with key players (particularly the lender), and I am almost there.  

I always lose at gambling.Frank

Even if you end up in court and lose, the loss will typically be covered by insurance.