First, I am not an attorney and hopefully an attorney was consulted prior to transfer from you to your sister. These are just my rambling thoughts.. Did Mom pass away prior to your transfer to your sister or was it after she passed? The life use should be terminated upon the death certificate being filed at the City Clerks Office in the Town where the house is located. The value of the house would be lower with the life use restriction in place. There are formulas for appraisers to use that are based on the average life expectancy of an individual and are used for life use situations. Example: a two family dwelling, with Mom still living, with Mom being 50 years old with a life use of the first floor. Don't have the charts in front of me, but you should expect her to live into the mid to late 70's. The house would be worth much less when she is 50 vs being 75 due to the life use restriction as she would be expected to live for at least another 20-25 years. A typical buyer would most likely not offer the same price for an identical house next door that recently sold without the life use clause as they would not be collecting the rent from the first floor apartment. Different types of life use... Mom could be living rent free, small token rent or paying full rent, etc... Depends on how it was written up.
But if Mom passed away prior to your sister putting your brother in-law and nephews name on the deed with her still having life use on the deed after she passed, that is either an oversight or perhaps intentional so as to lower the real estate assessment and yearly taxes on the property by the town, which may be considered fraud if it was intentional. Best advise would be to contact the City Clerk to see if a Death Certificate was filed with their office. But, the City Clerk does not always share that information with the Tax Assessor. Any potential buyer of the house (as well as the Title search) would most likely find this prior to any purchase or refinancing of a mortgage.
Hope I helped somewhat