How can a direct line be drawn between the MIL's gift 3 months prior to DIL purchasing MIL's property? 

Here in AZ , most of my peers that sold ( I own 2 ) buyer only can do private, commercial loans from your small bank , sba no other options I am aware reason it drives some buyer to buy business but lease the house from prior owner

If  your rule is not to rent to anyone with a prior eviction, this person would fall under that rule.  

You should have verified that it was fixed prior to closing.

After nearly a year of construction and about $40K in costs, all that had gotten done was the laying of the plumbing and foundation, the prior of which my contractor had to redo.

Even with this carve out available, it does plainly state that a taxpayer does still have the option to go back and amend the prior year return - so both answers can be correct.I would have your CPA/EA review your situation and the related Revenue Procedure to verify you are under this section, which would allow filing of the 3115 instead of amending the prior year return. 

You should Google "Terminated Merchant File" (TMF) a/k/a MATCH (Member Alert To Control High Risk) prior to opting to not make good on a debt to your payment processor.

In that example used the person provided maid services, swimming and fishing instruction, mail delivery, information about local churches and other things.

Start marketing 30 days prior to termination and you should have a new tenant lined up before they leave.

Largely we aim for mobile home deals, we've ran into complications and obstacles when dealing with some of the agents so prefer to deal directly with the buyer & seller, but creating a relationship prior as you're recommending could alleviate that for sure.