I think the city is crazy to think they can recover it, but it sounds like both houses were probably worthy of demolition and the owner just got it done for free.
An occupied house in good condition wouldn’t be mistaken for the wrong one.
Reading the article, it sounds like the mistake was because of the address, I couldn't find enough information in the article to know if the mistaken house was in poor condition. Were you expecting the actual demolition crew to question the work order?
From what I gather, the house was inspected and deemed not fit for habitation. They failed to mail the notices to the proper address. House was too get torn down either way, the guy in the story just didn't get the warnings.