You need to call the Community Development Department to see what needs to be done in a redevelopment area. They will tell you who has jurisdiction over the permitting of this unit, and if you can make it legal, cost, etc.
Generally, there are no rights to park in the street in front of your home. But there may be preferential parking permits for residents. And there are usually parking limits so people can't stay there all day. Call the City and find out what those are, if any. Then you might want to get with the other residents and see if the City will make yours a permit parking area. That would usually allow all day parking for your parents, but short time parking for others.
You should check with the planning/community development department. Probably they will issue a permit for a temporary use of the trailer while your home is being repaired. Otherwise, you may find yourself in the position of having to explain, seek a retroactive permit and probably paying fines.
Construction trailers are common while people build, so I believe this will come under that. But do check.
Lots to do before suing. It may be blighted and bring down property values and causing a public safety hazard. You may also want to contact the building's owner for maintaining a nuisance. You can find that information at your County recorder's office. I assume you've alerted your building department and public health? Called the police when people were using your hose? Call your county Commissioner if it's in the County, or if you are in the City, you would call the City Council.
There is a historical landmark association I believe. Certainly the Planning Commission should have weighed in by now. It may be it went though these hoops. Did you receive notice of any hearings?
Was there an environmental review? If it's already set for demolition, it's likely all those steps have taken place. Call the City to find out. If not, maybe the owner is flying under the radar and you should let the City know asap.
I'm wondering if your house was built with permits, was ever legal, what the former zoning was? This sounds very strange. The County can rezone, but I haven't heard about them doing so without paying compensation through an eminent domain proceeding, once a house exists under the old zoning.
You will need an attorney experienced in eminent domain or land use, due process law. Check with the bar for a referral.
It sounds as if your friend is in a redevelopment district. She may well need their sign off before a permit is issued. Have her call the Planning Department for clarification. I assume her inspector was private. Whether or not an illegally built unit is in compliance and a permit can be issued will depend on a number of factors, not simply bringing it up to code. She may need to consult a land use attorney if the PD cannot give her a straight answer or there are more issues. Without...
Is the property buildable? Is it useful for a school or other non-profit? If so, a donation might be to your benefit. I would not just let it go for taxes. You might see if you can donate to the City, or maybe to a neighbor who would have more land, sell for 1 dollar; but I do not recommend letting it just go for back taxes. It might adversely affect your credit at the very least.
You might contact a local real estate attorney for more specific advice.
These uses could be prohibited for the reasons stated above. TO see see if they are, read your CCR's. If you are trying o get them prohibited, you may need to enlist the aid of your neighbors to pass a change to the CCR's.
You don't specify if you are in the County or the City. If in the County, the Sonoma ordinances would apply; if in the City, the City Municipal Code would apply. Either way, it is unlikely that leasing land offsite would qualify under any situation. If you'd like a consultation, I am in Marin County but work in Sonoma as well.