From your original post the bottom line is the lender will not approve the mortgage loan until there is a satisfactory resolution on the judgment.
At this point the details of the accident litigation and the medical expenses and cancelled insurance are irrelevant. He is also not currently a homeowner, as he is trying to purchase the home he is currently living in.
All that matters now is that he has a $25,000 judgment debt (plus accrued interest over seven years) that he defaulted on, and the mortgage company will not budge until it is cleared up.
The quickest way to resolve this is to pay off the judgment, but that's not gonna happen anytime soon.
Negotiating a settlement will take longer, and the house he wishes to buy may be foreclosed on before then.
In the event a settlement is negotiated, the bank will expect proof from bank statements the agreed upon $2,000 down payment toward the judgment was actually paid. Once the paperwork is all in order clearing up this judgment, the bank will then consider this judgment as another debt he owes and will deduct his new debt payments from his disposable income. What this means is that if he was able to barely qualify for the loan before, he might no longer qualify for it with the additional debt.