It sounds like she was trying to sign Title over to you but never had it recorded - if that is the case, she still owns the house. However, even if she records the transfer of Title, she will still be liable for the loan (I'm assuming there is one since you referred to making the payments). If she wants to purchase another home, she will need to be able to qualify for a loan (unless she's going to pay all cash). When she applies for the loan, they will take into account she already has a loan (or loans) for the house you're living in. If she doesn't qualify for both loans, she will not be able to purchase another home.
Regardless of who's name the title is in, since the mortgage is in her name she alone is responsible for it. To qualify for a new mortgage she must personally have the capability to afford the current payment (including taxes and insurance) AND the new payment.
Shane makes a good point though - I doubt you'll find a bank willing to give a mortgage that small. From a lender perspective, it's just as much if not more work to close a $17,000 loan as it is a $217,000 and the costs of doing this loan outweigh any interest and fees they could make on doing this loan.
I'm not trying to discourage you from pursuing things. By all means check with a lender or two. But you're probably looking at having to pay cash as opposed to financing in this situation.
Best of luck!
That is too small of a loan amount for every lender I know of as the amount of APR affecting fees that'd be required to be charged would make the loan illegal to make (7.99% of $13,000 is $1,038.70, which is all of the APR affecting fees can total - Michigan's state limit may even be less).
Your best bet would be to get a personal loan, perhaps you, your wife and your daughter can all take out personal loans that accumulate $13,000, and then with the $4,000 down payment, you could purchase the new home in cash (perhaps even get a better deal than $17k).