。
It seems she lived near a lake.
Literal
She [topic-は] lake 's side [at-に] was-living [seems-ようだ].
湖のそば ('side of the lake, near the lake') uses そば as a relational noun meaning 'beside, next to, near.' 湖のそばに住む is the standard way to express 'live near a lake.' Note the past-tense 住んでいた preserved inside the ようだ frame — the inference is about a past situation. ようだ marks observation-based judgment, distinct from the hearsay-leaning らしい. Japan has many famous lakes — 琵琶湖, 河口湖, 中禅寺湖 — each anchoring its region's tourism and folklore.