At this point you don't want her there and unless she is doing this all just to get free rent, she is probably upset about the stove and may not want to be there long term either.

If we push them to blur the lines just a bit, can we really get upset when they turn around and blur the lines in the other direction?

That's too confusing and will probably upset your tenants.  

You do want to learn the rules of the sale prior to participation as there are some that do not wipe out the mortgage, etc. which is considered an upset bid. 

The house isn't in the condition that you agreed to pay for it in.Now, if you're financing, perhaps it makes more sense to close rather than upset the apple cart in the 11th hour.

I was so upset that I let this happen that immediately I engaged in learning all types of new strategy to help me avoid this from happening in the future.  

@Keith Boley - my motivation is to be doing something I have control over - my own victories or failures (with compensation commensurate) and that actually keeps my interest sparked on a daily basis.

Once you got in touch with the owner, how would you approach purchasing the ugly 4-plex without upsetting him?  

Welcome Victor. I

No one should be upset making profit from rentals.