Saw a similar situation unfold in my family.
A friend of one of my uncles lost his house back in 2008 so he allowed him and his family to move into his garage, which he had converted into a studio, and pay market rate rent.
After a few years they figured the studio was a bit too small and wanted something bigger.
My uncle told his buddy that if he built (and paid for) an addition to the house, he could live there at a discounted rate as a means to recover the cost of material and labor. And so his buddy took him up on the offer and built a 2-bedroom/1-bathroom addition on the side of the house. Without permits of any sort, of course...
Almost one year to the date when they had moved in to the new addition, my uncle told his buddy that he had to raise the rent because my aunt was complaining that he wasn't charging enough, etc etc. Huge fight ensued, and his buddy said screw it and left.
Since nothing had been written in paper and no permits pulled, there was really nothing his buddy could do. An attorney was out of the question as he didn't have enough to even cover the retainer.
Fast forward to today. The addition has been trashed by my aunt's pot smoking daughter from a previous relationship, and her friends. Of course, they pay no rent. My aunt is cheating on my uncle with some guy she met at the gym. And my uncle, being the cuck that he is, is sleeping in a tool shed in the back yard.
The whole situation is just a dumpster fire.
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Best advise OP, try to convince your parents to go to a mediator and see if some sort of amicable agreement can be reached.
The remaining options are move on and see it as a very expensive lesson learned, or lawyer up. Which will also be very expensive...
Good luck.