How should one treat a neighbor who has forcibly seized my house? Should I treat him with kindness as the Sunnah encourages, or deal with him according to the requirements of religion and law?

It is not permissible for the state or anyone else to seize people's money without a legitimate Shar'i right, nor is it permissible for a Muslim to benefit from it in any way. The right of a neighbor is great, but if the neighbor is corrupt and unjust, there is no objection to abandoning him. However, forgiveness, forbearance, and good treatment are preferable.