All Kidding aside, that sucks, and ya, I would investigate pursuing the legal route.

However, if you can get them to investigate, that MAY prompt the contractor to make good and finish the work out of fear of prosecution.

The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention.

Investigate several regions and seek out markets with promise.

They need the info so they can investigate her claims of Injury. 

Your post didn't give any visibility to your having done any of your own research beyond seeing a lot of properties for sale, so I would certainly echo the sentiment that you should put in some deeper investigation.

It seems that I kind of tipped them off (stupid I know) that I am investigating this and now I'm afraid that they will try and change the rules.  

That would be a pretty impressive level of collusion, certainly worthy of a government investigation. 

Have you investigated what the zoning is for this property and whether it would allow adding another unit as you propose?

The insurer as part of the investigation contacts the seller and asks about the judgment and is told oh yeah, I was wondering why I didn't have to pay that off but that's your problem now right?