Decorative wall tile like a backsplash is less of a concern.

And you want to be the owner of the property on title.And she wants to get out of her situation, not have to deal with the house or payments anymore, and also doesn't want to have this loan hanging over her head indefinitely.There is a way to set this up to where everybody is happy and protected, and from what you've shared, this does seem like a perfect candidate for a subject-to structure.Use that little search tool at the top right of your page and look for "subject to" ... you will find some great threads on this topic where people who are much more experienced with subject-to than me speak to how it works.

What does the walls and other areas look like??

To make it worse, the other side of 2 of the 4 walls is the exterior of the home (windows on each of the 2 walls).

If you throw in an accent wall or do the bottom of a chair rail in an accent color it helps a lot.

Let me ask @Jaron Walling  how would you done this deal?

We work on garage conversion and new construction ADUs, and we see a lot of these detached 2+2 car garages behind multiunit buildings.They are almost always in pretty bad shape structurally -- footings aren't deep enough, roof framing is too small and too widely spaces, roof framing is running side-to-side rather than front-to-back (so we have to put beams in and additional footings in when we remove portions of the walls that separate parking bays), ceiling height is too low, etc.

Our tenants in duplexes and our apartment building all have electric heat-baseboard oi small in-wall heaters.

The house was originally a single family home converted to a duplex and nothing was set straight; for example, a kitchen light was controlled by a switch hidden inside a wall, the pantry was in an old fire place, and it was leaking water through the threshold of the first unit. 

Obviously a revamped health club, you could take down walls between the racquetball courts to have other uses; 20' tall rock climbing walls, pickleball, practice rooms for local clubs and teams, an adventure park or entertainment park.