I received a letter in the mail from the City of Mobile informing me there is a code violation assessed to the property. 

Section 8 tenants know that any violation of the terms of the lease agreement, including paying rent, could result in the loss of their Section 8 voucher.   

Some of the things you have suggested -  new lease, rent increase, may be in violation of state regulations.

The letter states “An inspection of your property listing advertisement revealed a violation of city code ordinances”.

I'd then make monthly payments over a 15 yr period at 7% back to the IRA.Since the IRA isn't on the deed, and the house isn't occupied by me, my friends, or family, I don't see how this would violate IRS rules.

A transfer to a trust is exempt from due on sale violations since banks will view transfers to a trust as an estate planning tool.

Not letting them in when they've been given proper notice should be a violation of their lease and I would think they could be kicked out..

No one should be allowed to rent where ever they choose in violation of a landlords desire to not have animals.

The one time (damn it) we violated our criteria was to loan to a very experienced commercial contractor and his wife, who is a residential realtor.

If you pay the taxes and code violation fees, the property(ies) remain(s) in your grandfather's name.