How can Paypal possibly know which of you was telling the truth, you could have removed them from the housing and taken a photo just as easily as the buyer could have removed them before returning.

You should have emailed the seller telling them they had 48 hours to close the dispute and release the funds back to you or you would be taking the package they returned and all their details to the police so they would face charges of obtaining money by deception.

If they did not do so you should indeed have gone to the police station and got a crime report number which should then have been given to Paypal who would almost certainly have decided in your favour.