Firstly - this is likely governed by state, county and even municipal law / regulation so check in your jurisdiction.One question - Does your lease state that the 'Deposit' is for 'Security' or 'Last Months Rent' (LMR).

Conventional loans are the loans governed by Fannie Mae and Freddie Mac (if you recognize those names).  

Check with local government and speak with both the zoning and sewer officer. 

If they insist on the full amount ask for a detailed accounting and study the governing docs.

Lending is a highly regulated industry and most things are cut and dry with what they can and cannot do.

If you are investing in a certain area, be aware of the rules, regulations and laws governing real estate in your area.  

Adding on isn't always good, I've seen some crazy things in rural areas where they have less regulations on permits, etc. 

Government regulation from one agency causing consequences against another agency, when each agency originally intended to target the "rich landowner".  

Other than that, consult local zoning regulations.

Which government department rules this type of issue from title company?