Thank you for your response, the ceiling height in the basement would be to level out with rest of basement. No, I would not want to go lower. The sunken living room floor on inside has joist hangers already, this is on the main house middle beam. I do NOT have my floor open yet but here are pictures I found online that would be very similar to mine. the hangers on inside with wall dividing rooms right on the load bearing beam. The other picture would be the way on outside of wall with joist sitting on sill plate. My thought was that the living room floor that I need raised has no bearing on the rest of the structural walls. With in this living room I would be able to remove finish floor, sub floor to see all of floor joist.

Tile should never be installed directly on plywood. I would remove all the tile and determine whether the subfloor is in good condition. If it is, then I would replace the flooring. If you still like / want tile, it should not go directly on the plywood. I highly recommend using Schluter Ditra, which is an uncoupling membrane. Houses move and when tile is set directly on plywood like that, the movement can cause the mortar and grout to crack and tiles to come loose. If they did not use an uncoupling membrane like Ditra, they should have at least put cement board down and tiled on that. You might be able to pull up a heating vent (if you have any) to see what's underneath. https://www.schluter.com/schluter-us/en_US/Membranes/Uncoupling-(DITRA)/Schluter®-DITRA-&-DITRA-XL/p/DITRA Also, it does not surprise me at all that someone would do this improper installation. A lot of people who do not know what they are doing (or who know what they are doing but are only interested in a quick buck from an improperly installed cosmetic change) are tiling these days. We've been house shopping and there are so many flips out there that I am positive have not been done properly. Good luck!

Is your home on a slab? Definitely talk to neighbors contractors. It might be possible to do a raised wood platform. Lots of little details like vapor barriers to consider with any approach. I don’t think leaving the engineered flooring would be advisable. But you need expert help.

I would leave it as it is. Its a lot of work, and you may not be able to match the flooring. A wider step can be dangerous too. You have a good sized opening, and it looks good the way it is. If the floors were level, I may feel a bit different about it, but, no matter what, with the step down, it will not all be an open nice room, it will always be two rooms, and you will have removed walls where furniture needs to go, and created a dangerous step down area, that will most likely need a railing to separate the two areas.