I thought maybe she’d like the increased income and reduced liability as she approaches 90 years old but I see the tax issues might be too big an obstacle as she does seem pretty well off. 

Not an eligibility issue so much as who is able to take it on.  

Your property sounds to be more unique, therefor likely making it challenging to find acceptable comps. if the property is common for the area, it's likely this could be a non-issue with the right lender. 

There are no laws against it, and it can be an effective technique in the right situation.

Have them pay for it and tell them you will reimburse them if there is a structural issue to the exterior sewer line. 

Credit score shouldn't be an issue.

There are other factors to consider, such as the quality of landlord-tenant laws, the court's ability to protect landlords, the ability to find a quality property manager, etc.

Some cities require the STR permit number in the title or very top of the OTA listing so city permit  technicians can scan and keep track otherwise the owner will be contacted and fined for forgetting or shut down if operating illegally.Some cities have a 24/7 STR hotline dedicated to receiving any complaints (from neighbors, HOA) for a code compliance officer to act onSome cities issue expensive fines for those operating without the STR permit

This may be a case where you are trying to force the issue by wanting to complete a flip transaction where your market is telling you its not the right time.

I am also not familiar with California rental laws so be sure to check with someone more familiar with local laws to ensure you remain compliant with those laws.