mortgage and home improvement
Only if you are applying for renovation financing like an FHA 203k loan in which case the loan amount will be based on the purchase price plus renovations. More info on the 203k program here: http://renovationloans.com/fha-203k-program.html

reverse mortgage medicaid
Regulations with regard to how much cash you can have and still qualify for medicaid vary from state to state. Having a reverse mortgage in and of itself will not impact your eligibility as long as you do not exceed the cash on hand cap set by the program in your state. In cases where medicaid eligibility is...

I am 68 my wife is 54 can she be taken off title for a reverse mortage
While some lenders no longer allow "non-borrowing spouses" we along with a few others still allow it with proper disclosure and counseling. Another comment mentioned that you can add her back later however there is no guarantee that you will have sufficient equity at that time to qualify.

Not sure what to expect
You can sue anyone for anything but unlikely you will gain anything from it in this case unless she was stealing money and there is fraud involved. As long as the house hasn't yet been foreclosed on (normally takes a long time) you should still be able to sell it. As Scott suggested, reach out to the current...