HELOC & Zoning legal issue

[Account Closed]

Newbie to BiggerPockets here!

My husband and I just ventured in the rental business 3 years ago. We have 2 investment properties and in the process on buying the third one. 

Due to limited cash, we're advised to take out HELOC from our primary home. This is where the story gets interesting. In the middle of HELOC process, the bank appraiser found out that our single family primary home was built on multi family zone, therefore the bank was hesitant to get us the HELOC.

After multiple trips to the City Zoning office, we are advised that the status is illegal non-conforming and we should submit petition for rezoning.

 We're so baffled why this can happen. The house was advertised as single family home (and it is single family home).To add more interesting stuff into the mix, we realized that the appraiser that did our house put a WRONG LOT information in our appraisal. Moreover, the title company LET it through! Also, How could the builder get a permit to build single family home on MF3 zone?

We should close on Jan 4, but due to this issue we might not.

Should we cut our losses and submit a rezoning petition or should we pursue legal route to the builder?

Thank you