The home was paid and unfortunately, her dad passed away.

Not sure if this is strictly fair as the full rent would still be being paid under the terms of the lease by the other two tenants.I've gotten a lot of value from the insights on offer here on Bigger Pockets, and I'd appreciate any insight as to how you have handled similar issues in the past.

If the latter, as others have mentioned, best to get that paid down/off first before looking to invest.And totally on board with the Dave Ramsey plan mentioned by @Steve Vaughan.

I'm an old dog that has been paying on my til deaths for a long time, a lot of them paid off altogether. 

Basically, in our case the tenant could (and was required as always) to pay future rent, but the past due rent would have been placed with all the other debts in the bankruptcy and paid out over time, if ever. 

It sounds like I should be looking for a pre-approval for the end financing to confirm I can get there with a conventional loan at the end of the day.

I'll round the numbers for the purpose of this discussion but basically we paid $440k for the property and have a planned reno budget of $100k.

Looking for a "pre-boom" city is the way to go!

But, he hasn't paid into anything for years."

That price range is what I am currently pre-approved for.