It looks like there are several CC/medical debts they're wiping out as well as a couple small balance liens for judgments which have attached to their primary residence.

I'm currently renting a bedroom out in the home that I own, and one of my tenants recently asked me if he could keep his medical marijuana at the house. 

I work full time in the medical field and currently relocated to Indianapolis for my job.

After reading your deal, my question would be how informed is the seller and does the seller have mental or other medical issues that would render them incompetent to do any business dealings at all? 

Do you have other debt you want to try to discharge such as credit card debt or medical bills?

They now want to do an FHA refinance to exercise the option.

This may not be what you want to hear but if your tenant is lead poisoned and you were aware (which you are by making this post) you are on the hook for medical, potential future earnings and multiply that by 3.

Some alternative options you can exercise are to search for properties in neighboring towns which are exhibiting healthy growth (i.e.

Beatiful stone building that was an old medical building converted to multi family.

Regus, Industrious, GreenDesk, WeWork, Novel etc have come up along with student housing via large medical school, research, healthcare presence.