Nobody will take away the house or the sale proceeds. Medicaid benefits will simply be suspended while the house sale proceeds are "spent down" for your mother's care. When her countable resources are back under the Medicaid limit, her benefits will resume.
Best wishes for a favorable outcome, and please remember to designate a best answer.
This answer is offered as a public service for general information only and may not be relied upon as legal advice.
As may be apparent from the prior answers, you should have an attorney who has experience with medicare/medicaid cases review your mother's situation and help determine what assets are and what assets are not subject to the medicaid spend-down provisions.
If you do not have a valid durable general power of attorney over your mother's financial affairs and/or a Healthcare Power of Attorney/Living Will, then you may also have to petition the court in the state where your mother resides for guardianship and conservatorship over your mother in order to have the legal authority (i.e., ability) to marshall your mother's assets and dispose of them.
This response does not create an attorney-client relationship and is intended for general information purposes only.
Medicaid is a federal program that is administered by the states so the rules will vary from state to state. However, if it was her primary residence, it may be a non-countable asset that Medicaid should not force her to sell. Additionally, if you want to keep the family home but don't have enough money to buy it outright or can't get a mortgage, you could purchase it on an installment contract and then the asset would not be counted but the monthly payment she received would be counted as income. What happens if she is still forced to sell the home? If the home sells, your mother will be over the asset limit and will need to spend down that money to the asset limit before Medicaid coverage begins. Note that the sale proceeds do not have to be spent entirely on her nursing home/medical care. She can spend the money on non-exempt assets, such as funeral arrangements, possibly pay for additional therapies that aren't covered by Medicaid, pay down existing debt, purchase a Deficit Reduction Act compliant annuity, which would convert the sale proceeds from an asset into an income stream. The cool thing about elder law is that there are SO many planning techniques you can use to preserve and protect your assets. I would consult an elder law attorney in your mother's home state to discuss what planning opportunities exist for her and also to look into appealing the case worker's decision to force her to sell the primary residence as it might be an exempt asset. Best of luck!
This answer has been prepared for informational purposes only and does not constitute legal advice. The information is not provided in the course of an attorney-client relationship and is not intended to substitute for legal advice from an attorney licensed in your jurisdiction.