I have the ability to access a good amount of cash for a down payment on a property through a HELOC if I choose.

HER PARENTS BOTH HAD ALZHEIMER'S,HER DAD PASSED AWAY IN DEC,AND JUST TRYING TO KEEP MY PROMISE TO HIM THAT I WOULDN'T LET ANYTHING HAPPEN TO HER,BUT THE MONEY I HAVE ALSO CAME FROM A IRA FUND THAT MY DAD LEFT ME IN APRIL WHEN HE PASSED.I REALLY WANTED TO BUY A HOME WITH THAT MONEY AS A DOWN PAYMENT,BUT IF I THINK I CAN GET IT BACK LATER THEN I WILL BE THE HERO FOR NOW ANYWAY.

I believe we have all the paper work (5 day notice, original lease, updated ledger showing the non payment rent etc).

If you are really going to settle on this property - you could ask the owner to give them a 60 day notice of rent increase - send this notice effect September 1st, (don't miss this mailing) raise the rent to the number you want - if the tenant agrees to accept the rent increase - great - if not - you would be in a position to eviction them based on the non-payment of the increase or they will just move - you may want to say in that increase rent notice that there are plans to improve their living conditions, supply new appliances and whatever you plan to do.Do this will help get what you want without vacancies and still have a tenant who will be happy to comply to the increase.Cash flow is King - don't kill the King.Charles

So, if I happen to get the original property and still want to pursue this short sale, I'll have to find a way to fund potentially two properties at once, when I only really have a down payment for one.

Having a steady job will allow you to save cash for down payments on properties.

He needs to sell because can't afford payments, had a lot of bad things happen during the year (in the house), and has found a job out of state to get away/start over and just wants out (whatever the reason, he is motivated). 

Taking over payment terms, and then tying up the equity, is not beneficial to my overall exit plan.

Would it make sense for me to approach him about doing a Warranty or Quit Claim deed to get him out of the mortgage and I take over the payments and ownership of the home and prevent him from foreclosure?

Then make the payments no matter what.Short sales are only possible with an owner who is behind on payments and can demonstrate financial hardship.