If the bank won't refinance, you can't assume her mortgage. Her estate will have to pay off the mortgage before it can be willed to you free of liens. If the estate cannot pay off the mortgage, you will have to sell the house to pay off her debts. You can "buy" the house by paying off those debts... It will depend on many factors: who the executor of the estate is, how much is remaining on the mortgage, how many other debts your grandmother has, etc.
One idea would be to begin the transfer process now. Many seniors transfer their homes into their children's names prior to death. As long as you are not doing anything illegal by trying to hide assets, this could be a way to protect the home from her creditors upon death.
I would do TWO things immediately:
Try to get a mortgage and consult with an real estate / estate attorney (or financial advisor). You also want to see if there's a way to minimize taxes during the transfer since you are related.
Let me know if you would like me to do a CMA (valuation) of your grandmother's home. Also, I can recommend a couple mortgage reps / attorneys.
Hope this helps!
Eric Axelson, Associate Broker
Kurfiss Sotheby's International Realty