In table form for ease of understanding:
|Value|mortgage
Property 1|€120k|0
Property 2|€150k|€235k
50% of property 3|€150k|0
Total|€420k|€235k
Net equity: €185k
What is the interest rate you are paying on your mortgage? I am guessing that it's a cheap tracker from the figures you have quoted. If so, you should keep Property 2 and the mortgage on it.
You have no chance of getting a mortgage to buy a house for some time.
Can you move into Property 1 or 2 ( or even property 3)? This would be a lot cheaper than renting.
When the problem with Property 3 is resolved, you will have €270k with which to buy a house. Is that enough?
In the meantime, you should probably just sell Property 1 and use the proceeds to pay your rent and normal living expenses. After a few years, your credit record will mend itself and when you eventually sell Property 3, you would be in a position to buy a family home.
Could you proceeds of the sale of Property 1 help to resolve the ownership problem with Property 3? If so, then you should sell Property 1 as soon as possible to have the money ready in case it's needed.
You might consider using the sales proceeds to pay down your mortgage
This depends on the rate of interest you are paying. If it's a tracker, you probably shouldn't do so.