The city acquired the house in June when its former owner fell way behind on taxes. It put the house on the market a month later.
Councilors agreed in October to sell it to Michael Baillargeon on the condition that he keep it as a single-family house. Officials said he planned to restore it.
But city Councilor Kevin McCauley, who heads the Real Estate Committee, said a zoning issue arose that complicated the deal.
Mayor Art Ward said there was a misunderstanding with Baillargeon about the caveat which the city put on the sale.
The real estate panel plans to review the terms again. The city still intends to sell the property.
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