When does your back yard belongs to someone else?

I was trimming overgrown bushes and trees in my back yard when the neighbor directly behind my yard informed me that he was going to obtain 4' of my back yard for his own use!  It turns out that the home and property that I purchased in 1989 has an alley easement of 8' in the back yard.  This easement has been on our properties (on the east side of block) for approximately 100 years, way before the other side of the block (west side) was even platted.  **Important - the properties on the west side of the block do not line up with the east side, in other words SOME of my backyard lines up with this neighbor but not all of it.  Talking to the east side neighbors revealed that all of our 'old' fences  incorporate the alley into the properties on the east side of the block.  

I went ahead and replaced the old fence that had partially already fallen down (that divides me from my north neighbor) and was promptly given a letter from the city of Seattle DOT stating that I was violating the public access to the alley by replacing the fence.  Now, I want you to know that my house is not on the end of the block but in the middle.  The entire block has incorporated this 'alley' into their back yards.  At one point I suggested that I just remove the part of the fence that I replaced that sits on the 'alley' and I was told 'NO, you have to get a permit to remove the fence.' WHAT??? 

I found out that my neighbor to the north also received a letter about the fence.  Apparently he and I are the target of this aggressive neighbor who happens to be a city employee with clout.  So after approximately 26 years of use, there is a possibility that my back fence will be jagged, partially bumped into my yard 4'-8'.   My north neighbor and I will have to apply to use this alley space ($344 application fee, $140 year per structure meaning a fence or swing or tool shed) AND SOMEONE can appeal the city's decision to grant us the use permit, denying us use of the space that we have been maintaining for many years.

Consolation was given by my friend Vidal who promptly saw the 'zen' of the fallen trimmed tree and built a pond UNDER it.  This beautiful Zen water garden provides peace while I await the city's decision on how to proceed.

Reflecting on nature's beauty, Christine