Tim Schroeder Bend has some very restrictive STR laws.

It's what is legally required per the IRS. 

What are my options and legal rights here?

E.g. you will spend at a minimum $10-15K (this is being ultra cheap) on a securities attorney (not including other costs around administration, legal and accounting). 

I would consult a lawyer to see if there is a legal way based on your lease to evict the offending tenant.

I'm not necessarily seeking legal advice, but rather looking to start a discussion surrounding this legal grey area found in contracts without a financing contingency.Helpful advice for anyone in a similar scenario:Never use sellers attorney as escrow agent.If your "out clause" states that you have the right to back out "for any reason or no reason", do NOT state a reason - there is simply no need and you'll likely find yourself in a similar scenario of he said - she said.Looking forward to chatting!

The law will enforce the lease agreement, as long as it legally abides by your jurisdiction's landlord laws.For future tenants, adding a type of "escape clause" only benefits the tenant.

I am not looking for tax or legal advice, just want to ensure I am filing the correct form.Thanks!

Are you certain it is a legal duplex?

Either inforce your lease or give your tenants written notice that the pet clause is void.A lease is a legal contract.