Gambling works out fine for some people. 

It just doesn't make any sense to me how one has anything to do with the other.Sounds like maybe the seller you bought it from, being the prez of the HOA, sold the place to you fraudulently, if he knew you wanted to build on that lot, and he knew you wouldn't be able to.But, this just all isn't making any kind of sense to me. 

The seller lied and conspired with the former tenant to create fraudulent documents, to trick the buyer into buying something other than what they were actually agreeing on.  

I also bought 2 acres of raw land in WA state that was a good location on a highway, and gambled on having to get tests done, etc.  

Worth the gamble in my opinion.

The problem would be that someone may consider it fraudulent. 

He became a devout born-again, ditched all his gambling buddies and started spending all his time in church.

I guess the main reasons I’d want to keep the house are 1) ego - to be able to say “I own a rental property” and 2) hope for things to magically turn around and one day sell for profit (gambling...)What would you do in my shoes?

I see it as a form of gambling. 

You're gambling for a chance of appreciation with lesser cash flow.