Granted, the interest rate on the loan for that house was 10.75% and it could change monthly (fully adjustable ARM with negative amortization).BTW, inflation is causing the currency to be worthless.

The purpose of my example "negotiation" is not about negotiating; it's about uprooting their strong-arm tactics altogether and ending the air of intimidation.  

Our investment arm won't invest anywhere where we can't assemble a strong, trustworthy team including a real estate agent that knows what they're doing (few and far between) and a great contractor (also hard to come by).

Since you say it was "listed" I'm assuming that that means it was on the MLS and that the seller is represent by a listing agent (if that is not the case, then the following is probably moot)...In 99% of transactions where the seller is represented by an agent and the property is listed on the MLS, the state Board of Realtor's standard sales contract is used, and the majority of them (if not all) are explicitly non-assignable.

Thoughts on 7yr ARM vs 30yr fixed with these high rates?

Fairly standard caps already in institutional ARMs. 

I’ve read different books that tell me that an FRM is better or an ARM is better.

., not ARM), I would avoid the refinance idea.

What is their motivation, I have seen sales brought back by the courts, civikla and bankruptcy, when transactions were not at arm's length or at a gross disadvantage.

The issue when family members are the tenants is that the IRS likes to see arms lengths terms and amounts.