When monsters raze player or AI controlled city, the city gets razed. The bug is that you can't build new city in that place anymore. If you, however, raze captured city, you can actually build new city on the same spot.
I have a save game with monsters just about to raze a city. When they do, you will see that spot is no longer available for settling. The spot had 5/3/1 when I settled it.
Save game:
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