Mil Wants $10k Loan From Us To Buy A House She Was Renting “under The Table”, How Do We Protect Ourselves If We Decide To Help?

Location: NY, USA

(hopefully this is the correct tag, obligatory “i’m on mobile, bad formatting”)

Long story short, my MIL has been “renting” a house for a decade, paying $600-800/month to a “friend” who agreed to just let her live in the house. Until recently, there was no contract. Just my MIL living in this house under the verbal agreement to pay this person. (illegal I’m sure) Recently, they signed some sort of “renting to own” type agreement on paper, but I am suspicious of legality and so is my husband as we don’t trust this person based on past incidents.

Unfortunately, this person is seriously ill now and wants my MIL to buy the house from her, otherwise she will, I guess, kick my MIL out and sell the house to pay for medical expenses. This lady wants around $10-13k to pay off her remaining mortgage and is saying that she will then sign the deed over to my MIL I guess for a free house??? I have no idea how that will work legally. My MIL cannot afford this at all (has little/no savings despite good income) and was denied a loan at the bank due to outstanding collections and bad credit from past struggles. (Red flags, yes)

The ask is that we give the $10-13k as a loan to her so that she can own the house and no longer fear being kicked out if this person dies. She would then pay us off in a year.

My husband and I are not well off. We own our home outright, but that’s about it in terms of assets. We have good credit and decent savings, but $10-$13k would be half of those savings. We had a long talk and we are on the same page with options. Number 1 option is obviously, we say “absolutely the hell not” and do nothing.

Option 2 is what I want advice on. If we help her, my firm stipulation is I want the house if anything happens to her before she can pay us back. Her health isn’t good either and there’s always the chance she loses her job or god forbid, dies. Is there a legal way to do this? If we can’t have the house in the event she can’t pay us back, I don’t want to help. We discussed her willing the house to us in her will, but you can’t will something you don’t own, right? so she would have to do this after we’d already paid and she owned the house, correct? Which we don’t want to risk. We also floated the idea that we buy the house from this person directly, then sell back to his mom as she can afford it. The issue there being we don’t want to be on the hook for taxes and don’t really want to own this house or be that deeply involved, we only want it as a collateral asset to protect ourselves and would sell it immediately if we ever own it.

So what is the best legal option here, if we decide to help? Advice appreciated, even if it’s “oh hell no, and here’s why.” I will use that to ease my husband’s unwarranted guilt.

EDIT TO ADD: obviously we are doing nothing without a lawyer present and are considering finding our own separate lawyer as well.

Edit: thank you all!! I’ve relayed these comments to my husband and had another discussion where we agreed we are not willing to lose this money. Tenuously open to buying the house in our name fully if the owner will even sell to us, but much more leaning towards no. We will provide emotional support and try to help her come up with her own plan going forward. Turning notifications off now but i am reading every comment and I truly appreciate all the advice.