Oh man Dave. That's just fd up. However nothing surprises me anymore.
Guy across the street did like you (smaller property and house - in fact its the one with light green shutters) and there was no problem at all. It had been converted into two apartments and yes there was a dead cat and squirel. Even an brick exterior wall was weak (ivy). He looked at current codes, and decided to convert it back to single family (you can still rent rooms as a single family 'boarding house'. Oddly enough, property taxes are lower if its rental, but no that much. Might be a statewide thing. During the last major reassassment, we were told at public meetings that the methodology is set by the state. IMO its got a lot of incentives backwars, such as a rewarding owners of neglected building in poor condition.