I have a court hearing scheduled for December 16 to try to bring the appraised value down. 

The IRS and the courts have stated that mere co-ownership, rental, and maintenance of real property does not create a partnership for federal income tax purposes.

@Marcus Daniels A cash out refinance would not be wise if you have no plan for the proceeds that are coming back.

It looks like it would be very easy to sell and use the proceeds for the remodel (this is what my non-RE investors and parents tell me).I see renting my old house as a means to pay for my new house's mortgage, while also having equity to borrow for the remodel and future investments.

It's not "harassment" to send them a final invoice just like you would send them a refund if they had anything left over.You could take them to court, seek a judgment, and then send it to collections if they still refused to pay.

Funds used for Phase One: Proceeds from the sale of the Newport Beach condo (see those deal details in my profile).

Any proceeds that go towards personal use would be taxed and using on construction is prohibited. 

I mentioned seller financing and the seller said that he would not want his money tied up longer than 2 years because he wants to use the proceeds to build.

If you was selling it directly to your realtor then your realtor was probably screwing you, anyway, and would never sue you, or win in court.

That's because there are no tax consequences to the grantor until the option lapses or is exercised.If the option lapses (that is, the holder chooses not to buy the real estate), the grantor has income equal to the amount paid to him or her for the option.If the option is exercised by the holder (that is, the holder buys the real estate), the sale proceeds for purposes of determining the grantor's gain or loss on the sale of the real property includes the amount the grantor received for the option.The grantor's tax deferral can only be achieved if the agreement is a true option.