How to read an ANSI encoded file containing special characters

Use Encoding.Default:

string content = File.ReadAllText(pendingChange.LocalItem, Encoding.Default);

You should be aware, however, that that reads it using the system default encoding – which may not be the same as the encoding of the file. There’s no single encoding called ANSI, but usually when people talk about “the ANSI encoding” they mean Windows Code Page 1252 or whatever their box happens to use.

Your code will be more robust if you can find out the exact encoding used.