@Nick Harvey - the plan is to flip it. The tenant is the biggest B#$#% in the world and is completely irrational so that is pointless.
@Pat L. - that would be the greatest move in the world, if only I could get the owner of the house to answer my call again. I would actually be tempted to make her an all cash offer and then immediately file for eviction. Highly unlikely I could make that work though.
@Charlie MacPherson - Let me clarify my story above. Initially the owner gave me permission verbally before I actually bought the house, but upon talking to her again after the first run-in with the tenant she completely did a 180 on me. She never gave a real justification for the change of heart, just said she couldn't give me permission at this time. It seems as if she doesn't want to make her tenants mad since they are buying the house. Which is ridiculous.
@Brian Pulaski - I took the survey down to the city building department before buying the house to make sure I was okay. I was told that I could not do any additions to this part of the property that was that close to the property line, but I would not have to do anything with the existing structure as it stands. As mentioned above I have tried speaking with the owner, and also tried calling the police to come out the one time as a "keep the piece" type option, but neither option has worked so far.
One option I need to try to pursue further is the other owner on the deed. The owner mentioned she owns it with her ex-husband, I have tried tracking him down but with no luck so far. I am hoping he would love a "stick it to the ex-wife" type situation, even if I have to give him a little bit of money in order to secure his written approval. I am pretty sure that having permission from one of the owners on the deed would suffice. My next step is to go speak with the tenants of another property that the ex-husband owns on his own, hopefully they are willing to give me a phone number I can reach him.
My only other option right now is to just go do the work and deal with the cops when (not if) they come. The work we can do pretty quickly, even painting the new wood siding before we go over to attach it. Right now the other option I have for tenting the property is to just offer that to the new buyer as part of a deal, but making the new buyer schedule that AFTER the closing. Then the new buyer can deal with the tenants after I have cashed my check. Not sure what other option I have.