Li, I've been thinking about this some more, especially in light of the crazy neighbor. Here are my thoughts ...
If you've got someone who can tell you that you've got legal grounds agains this woman I'd write her a letter and tell her that it's now HER responsibility to 1) make the tree visually presentable by a licensed arborist, or 2) have it removed and replaced with greenery of your choosing. If she refuses to do so then you can take her to court and sue her for not only the value of the tree but the loss of income on your townhouse due to decreased property value.
All of this is going to take time and will probably get pretty ugly unless you've got a friend who's an attorney and can write a good, threatening letter.
If you can get any kind of statement from the HOA that they specifically told her NOT to touch the tree that might be a good idea too. You might even be able to check your CC&Rs to see if there's already something in writing to further your cause. Where I live the landscaping in our front yards is maintained by the Association. I'd think that they'd be pretty unhappy if she touched something that wasn't hers to touch in the first place. And if that's true & they don't do anything about it then you might have justification to go after them as well. But it's going to be messy ... sigh.
Enough thinking.
Laura