Worried About Possible Building Condemnation by the City

[Aaron Symbol]

A lot of history to this, but I'll try to make it brief :)

In 2015, I bought a unit in an older downtown building to be used as a long term rental. Kept it occupied and rented for about 2yrs.  After the tenant left, I then decided to owner occupy and have lived in it myself for about a year. The unit is now completely paid off.

In the last year or so, several issues with building have been surfacing due to long-term neglect of previous management companies and the original developer/renovator (in 2006). Here's what I know so far:

1. Much of the original piping in the building is still in use (yes, ~100yr old pipes!), and have started to fail. So far, this has affected about 8 units which have been evacuated and renovation efforts are underway

2. During an inspection by the city, it was noted that the system lacks a backflow prevention device, which is not up to city code.

3. In order to install a backflow, it was further discovered that a structural beam has dry rot (likely due to long-term leaking from interior pipes), and this would first have to be replaced.

4. The current HOA does not have the funds for this, so not only have they recently raised dues, but I believe a large special assessment will be coming (possibly before end of year).

5. The city has given the HOA a deadline to repair the damage and bring the piping system up to code.

6. There is a clause in the HOA insurance that will cover pipe repair and replacement if the building is declared condemned by the city due to water-related issues. I have not read the clause myself but have discussed it with one of the HOA board members.

At this point, my unit is completely paid off (cost basis of ~120k minus some depreciation).  And, needless to say, I'm a little worried about my equity. I'm thinking of the following options:

1. Immediately turn the unit back into a rental. In the scenario of the HOA being able to address the issues successfully by raising dues and special assessments, I could at least take a tax deduction for them. I could also continue to take depreciation and reduce the cost basis further. Finally, I could structure my property insurance to cover lost rent to unforeseen issues (like pipe bursting). So, basically using insurance and the IRS to help subsidize my risk :)

2. Attempt a quick sale. Zillow lists my unit at ~$170k, which I don't think I could get after making honest disclosures (Although I would not speculate about the condemnation as this is still just one possible outcome).  Units on lower levels have recently sold for about $150k, so that would perhaps be an expectation for my unit after disclosures. There's also a lot of potential appreciation on the horizon: the city is supposed be building a greenway on the block, there are a lot of construction projects in the neighborhood and a lot of new, high-end condos have recently completed construction a few blocks away. In short, I was hoping to sell in about a year to capture some of this as appreciation. But now I'm thinking it could be too risky to wait

3. A cash out refi.  I've never done one of these so am inexperienced. I think I can take out up to 80% of equity? This option would use the bank to subsidize my risk, but it could be a legal nightmare if something should go wrong. I also put my credit worthiness at risk here. 

4. Do nothing. continue to live in the unit free and clear and just continue to pay HOA dues and special assessments as they come. Work with my insurance now to make sure they cover temporary housing costs due to displacement from emergencies or condemnation of the bldg.

Thanks for taking the time to read. I'm interested to hear what the collective wisdom of this forum advises :).