Do these people realize the legal mess they have made, and the risks?

The house was jointly owned, but only the husband owns the S Corp? It is not advised to put Real Estate into S Corp ownership, and even worse, she just gave away her property. The mortgage is in her SSN, so the S Corp doesn't have the debt? Yet, Corporations are formed to isolate self from the business activity, so now, not only does she no longer own the property, she still has to pay for it?

All sorts of wrong, here.