As I said earlier, this is a very unusual situation. In the case of an involuntary conversion (see Pub 544) there is usually gain to be dealt with, which in this case does not appear to be present as no compensation was paid. I also read IRC 1016 and it is confusing but appears to state no change in basis as a result of an involuntary conversion. What I am curious about and what has not been explained, is what happened to the liability of the father on the mortgage? Does he have a COD income as a result? Obviously, the mortgage will have to be paid off at the time of the sale, as the bank(?) would certainly not release the home as collateral. Also, in order for it to qualify as a gift, the donor must have intended to make a gift to the donee. Now, did the state or court assume legal responsibility for the father and did it have the power to make such a gift on his behalf? I would want to see that court order before going down that road. Do you have a copy of it?
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