However, since this is an investment property of mine would any bank still give me a HELOC?

The small local bank has been great working with us. 

Know what needs to be done, know the bank will not be fixing it, and base your best offer on that.

My debt to income ratio is going to be to high I am afraid with the way the bank figures my income.

Second the bank lender likely will require you have some of your cash in the deal.

Keep in mind the financial resources do not have to be yours, they just have to be money you have access to; not just banks but also friends family, hard money lenders etc. 

we bought a bank owned house that we want to fix up and live in.

You WILL need cash...either yours or others such as friends, family, banks, HML...but you WILL need some.

Is there a bank or lender out there that will allow him to refinance the home and subsequently owner finance it to a buyer? 

I suppose you have been reporting the rental income and expenses(including depreciation) on your tax return.If you get paid in Italian currency - it is your job to convert the amounts in USD when reporting it on your return.If you hold the property in an entity(partnership or corporation) you may have additional informational forms to file with the IRS.If you have a bank account in Italy with a value over $10,000 - you also have an additional informational forms to file with the IRS.You should have been entitled to a step-up in basis upon inheritance.