Quad loan DENIED due to zoning change

[Account Closed]

We are under contract for a quadplex which we were purchasing with a conventional loan. The quadplex is one building, with 2 units on each side and each side has its own address. This was legally built in the '80s, but since then the zoning has changed to R2. 

The loan was denied because of the zoning change, with the statement saying that If something happened to the building then the structure could not be rebuilt back to a quad.  I was told that we won't be able to get any institutional loan (now, or in the future) so we would have to do cash or seller financing.   Does this sound right? If so, I am assuming this must be a relatively common issue due to zoning changes. This may kill the deal for us, so I am wondering if anyone has any creative solutions on how to proceed?  This is our first multi family deal.

[Jonathan Taylor Smith]

Inquire with different lenders as your current lender is apparently making their loan discussion based upon what should instead be an insurance concern. What difference does it make to the lender if it cannot be rebuilt as a quad if it is insured for at least the loan amount (which they certainly will require)? And when going to alternate lenders, do not give them a ready-made reason to say NO as well by volunteering the zoning concern of the prior lender - let them determine if that is an issue for themselves.