My first thought is NATIVE MEADOW!
My second thought is...watch out for ticks. The current wisdom is that keeping vegetation low around the dwelling will help cut down on ticks if you have deer. Thus reducing the likelihood you'll get lyme disease or something else the filthy deer carry. SO make sure you keep a clear swath where you want to hang around in the backyard.
But having said that, the area sounds great for
a native meadow. Ideally you'd start with a clean slate, but you can try this if you have full sun in the area where you want the plants:
1. Mow the weeds.
2. Rough up the soil and pull up any big clumps of grass or ornery weeds.
3. Broadcast native seeds. I'd strongly recommend American Meadows native wildflower mix. Throw in some perennial lupine seeds for good measure. These may attract an incredibuly beautiful and endangered BLUE butterfly.
SOme of the seeds may not germinate, but I'd recommend doing this now and then broadcasting a new set of seeds in Fall. That way the seeds will cold stratify.
To maintain the meadow. Hand pull any weeds that get out of hand if you want. Then Mow it all down every fall to keep trees and shrubs from sneaking in to the meadow. You are going to see TONS of beautiful native butterflies once the meadow gets going.
Best of luck!