Why not just run the VIN through the local police station to check it out?
At worst, if it came back stolen, you would have to turn it over and probably be out just the cost of pulling it out. Given the current condition of it, I doubt anyone would want it like it is and you could probably make a offer to buy it and make it legaly yours.
But from the sound of it, (little old lady story w/known history) it's probably more likely to come back in the clear, and you'd have a definate green light to do whatever you please with it. I'd still think you'd want to get it titled in your own name before turning a wrench on it just to be safe though.