Maybe the government should disband section 8 and use those funds to match these folks up to home ownership... save them a heck of a lot of money and bring pride of ownership back into areas that desperately need it... you could give them a voucher for tax payments so they don't lose the house... but keep them responsible for the asset through its life.. with a 10 year no sell clause  or if its sold proceeds pay Section 8 first.

So I'll proceed with caution, but keep moving forward.Mike

So we are going to list it.Any advice on how we should proceed would be greatly appreciated!!

I don't want to scare you or anything but proceed with caution.

Then quit your job and live with your family for a while until you get settled in and proceed from there.  

Unfortunately I think I pushed to hard because she decided to buy a couple out of state with out ever physically seeing the sites, against my advice,she then proceeded to chose the first property manager that was suggested to her by her new tax guy.

Source and Seasoning the Down Payment: Conventional lenders (for the most part) will require that you verify, that, for AT LEAST 60 days, you have had: either the funds in your account OR you have earned (maybe a bonus at work, business profits, ect) or are entitled to funds (retirement savings account, inheritance, award prizes, proceeds from the sale of an assett, ect) and can prove where you obtained those funds from to show they are not a new debt or ineligible funds (funds that can't be sources or borrower funds).As to the LTV/CLTV: you will not be able to have the agreement between you and your fathers friend recorded against the property at time of closing, because of the CLTV restrictions, you can borrower 60% from conventional financing and get a 15% 2nd mortgage from your fathers friend, but, this would not normally make sense to do since the 1st mortgage is willing to go to 75% anyway.

Any suggestions on a fair way to proceed?

Then after that time has elapsed, the Mortgagee can proceed with further legal actions in line with the foreclosure process of the state.  

Your offer  $65,000.00 however your offer does not present the sellers with an adequate solution to their problem and will not leave  with enough money to do anything with the proceeds of the sale because they might have calculated they will need $14,000.00 to get a new start with another property or a rental.