Get from him IN WRITING what the stated issues are and why they are issues (i.e. code related, decay, etc), including associated costs.

You're in a low % down product, make yourself look like a well qualified buyer in other regards to counteract that.  

Then you've got the problem(s) with decaying infrastructure (water, sewer, roads, street lights).It is not an impossible situation, but it is VERY difficult.  

It was like that when I got there)...it was like the policyowner just forgot about it and let the cash values decay without doing anything.

There aren't any major companies moving to the area that I know of (the largest employer is the hospital followed by the school district, Vestas is building wind turbines there and EVRAZ may be expanding their steel operations which could be good for the town although steel has historically created a volatile boom and bust cycle which has lead to much of the blight and urban decay that is visible throughout the area) and the population is mostly stagnant.

Although, what I’ve seen to counteract the increase in prices is increased rents.

However this will be somewhat counteracted by increased inventory (reduced lock in effect). 

That tank and any remnants have since been removed, so the oil ran unencumbered straight to the basement on a very old and decaying, yet functional concrete floor. 

First you have to fix any rot or decay and have a good solid surface, smooth and firm.  

Many times underground pipes burst due to age/decay, normal wear and tear, shifting clays/foundations, freezing, or because of a tree root.