My previous landlord rented out an "illegal" apartment to me...now what is my best option in this case?

I rented an upstairs apartment for over 3 years. My now ex husband eventually bought a house, which I lived in for about a year with him but we separated and I got my own place eventually. I’ve been in my current apartment less than a year. My partner and I are trying to move into a 2 bedroom by the time our baby is born in September but we’re having issues. The place we really wanted sent us a rejection letter this week. I called their office to ask for an explanation and she informed me I didn’t have long enough rental history. I was very confused of course because the last apartment I resided in was well over a 3 year period. She then told me that it wasn’t listed as an apartment according to the town so she couldn’t count that as a “real” apartment! What?! She also said it looked suspicious because the landlord shared the same address. I tried to explain to her the landlord lived in the downstairs apartment and rented out his upstairs. It was a 1 bed, 1 bath, kitchen, living room. It was an apartment! She argued that it was listed as a single family home so basically I was out of luck. Is this legal for him to do this? I’m so upset that I had a perfect rental history with this guy for such a long period of time and it doesn’t even count! What a waste! Is there anything I can do at this point? I’m running out of time and now it looks like I’ll be having a lot more trouble than I originally thought. Any advice?

I live in NY state if that matters.