Unfortunately the Regs don't take into account life changing circs such as this lady has experienced.
She would still be excluded as a former owner for 5 years – 9( 1)( h ) because as you say, "they sold their property with the intention of buying another, but remained in the property paying rent until they could do so"
She would not be able to fulfil the criteria for "forced quick sale and rent back" either as the sale of the property was a lifestyle choice, so not eligible under 9(1)(ha) either.
Her only hope of HB would be renting another property.
