As for what the town said, I am shocked that not having a clean out in the
front yard is their "out".
What difference does it make if you use the one in basement or one a
couple feet downstream out in the yard?

Here in SoCal we have what we call 'property line clean-outs. Usually 18"
back from the side-walk. The City won't do anything without one. They don't
want to be liable for coming onto your property.. But if you have one, and
there are roots past it, this city will take care of replacing that section
of line. And if the City will do it for $1400, sounds right to me.