I can see why the police didn't want to get involved when it was only the neighbors who complained. If the record owner were to complain (the one who walked away), the police might well arrest the squatter for trespassing.
My question for you, as a lawyer who might know this: can you beat an adverse possession claim simply by giving the squatter permission? Would a written notice permitting occupation for, say, 60 days, reset the clock on "continuous hostile actual occupation"?
That's pretty much the law everywhere in the U.S. (save perhaps Louisiana, which has a system rooted in Napoleonic law and not English common law). The mnemonic is ONCHA - open, notorious, continuous, hostile, and adverse.
> can you beat an adverse possession claim simply by giving the squatter permission?
I don't recall any cases off the top of my head. I doubt that an owner could unilaterally transform hostile possession into non-hostile possession; it'd be too tempting for the owner to try to fabricate backdated evidence of consent.
(Your question brought to mind a line from Henry Fielding, which my torts professor used to illustrate how consent is sometimes a defense: He in a few minutes ravished this fair creature, or at least would have ravished her, if she had not, by a timely compliance, prevented him. [3])
Even if he doesn't get the house he's still living rent free.
You can beat it with a peppercorn:
> [A] peppercorn rent is often used as a form of nominal ground rent where a (potentially substantial) premium has also been paid on commencement of a long lease of, say, 99 or 125 years (a "virtual freehold"). The notional collection of the annual peppercorn rent helps to maintain a formal Landlord and Tenant relationship between the two parties, precluding the risk of a claim for adverse possession from the tenant arising, were no consideration to be paid for an extended period.
http://en.wikipedia.org/wiki/Peppercorn_%28legal%29
(In this case, a 'peppercorn' is any tiny amount of money or other consideration, which is required to make a contract valid. It may, in fact, be a literal peppercorn.)
So in this case, it's a matter of "I dare you to come clear me out from your house - but if you do, here are some banks that would be really interested in your current phone number"
The main thing that keeps him "legal" in a certain sense is that, due to particularities of Texas law, once he's filed that document, it's a civil dispute over ownership, not a criminal case, so police won't evict him for trespassing unless a court resolves the civil dispute first, and orders eviction. He's betting that nobody is going to get around to pursuing that case, even though they would probably win if they did (since he does not in fact own the property, either de jure or through sufficiently long de-facto possession).