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RISMEDIA, December 10, 2010—(MCT)—A funny thing happened to DeBary, Fla., resident Russ Vas Dais as he was about to buy a foreclosed home: He learned the bank selling him the house didn’t actually own it. Fannie Mae had foreclosed on the property but, in an apparent paperwork problem, never took ownership.

“It was quite shocking to learn the bank didn’t have title to it,” said Vas Dais, who had worked in the real estate sales and appraisal business for 18 years. “We were trying to boost the economy by purchasing a foreclosed home, and we’re getting punished for it.”

Distressed sales, long the darling of bargain hunters, have become the subject of so many legal missteps in recent months that buyers may be getting squeamish. News of illegally signed loan documents, of lenders pulling suspect cases off court dockets, and of title problems such as Vas Dais’s appear to be dampening sales. Regular, old-fashioned home sales, meanwhile, are on the rise.

“There is definitely a new hesitation, and countless renegotiations of foreclosed properties that are under contract. Lenders are dropping prices 15-20% to get the buyer to stay in the deal,” said Jay Heckendorn-Telenda, who oversees foreclosures for Keller Williams Classic Realty in Orlando.

Foreclosures in recent months have become tainted by reports of missing documents and by notaries “witnessing” signatures of bank representatives even though the notaries and reps were physically in different states at the time.

Another emerging obstacle that could further complicate the foreclosure process: legal appeals that can reverse judicial foreclosures and can put a property’s ownership into deeper doubt.

Christopher Hunt, senior attorney with the Orlando law firm KEL, said the firm has beefed up its appeals staff and plans to start filing 20 foreclosure appeals a week. In July, the firm persuaded the 5th District Court of Appeal to overturn state Circuit Judge William Law’s foreclosure against Stephanie and John Crown of Lake County, Fla. The bank that took ownership, Chase Mortgage, never put the house on the market, and the Crowns have been able to continue living in it.

Buyers of foreclosed properties could find themselves caught up in such litigation if the foreclosure is overturned in the courts, Hunt said. “I think that is actually going to happen,” he added. “We’re not going to be able to prevent that in every instance. When that does happen, it’s bad for everyone. It’s a disaster in the making.”

For Vas Dais, the confusion over ownership was just one in a series of missteps he encountered while trying to purchase a foreclosed home in New Smyrna Beach, Fla.

Mistakenly thinking he could move into the house by the end of November, he did not renew the lease on the house he was renting in DeBary. Fannie Mae was eventually able to take title of the house that he wanted to buy, but the sale still unraveled. Vas Dais was forced to move his belongings into temporary storage and to look for an extended-stay suite two days before Thanksgiving.

“We are not expressing our frustrations to throw a pity party for ourselves, but just feel that the public should know that we are ‘ready, willing and able buyers’ and, ultimately, all of our tax dollars pay for the upkeep of these properties and we have no legal recourse,” said Vas Dais, who was still hoping last week that the issues could be resolved and he could eventually purchase the home.

The housing market’s reactions to such foreclosure failings remains to be seen.

During the past year, the appetite for “ordinary,” non-distressed home sales has fluctuated but now appears to be returning. During the last week of November, for example, 48% of Orlando’s existing-home sales were regular transactions—up from 43% a year earlier, according to the Orlando Regional REALTORS® Association.

Although some buyers are now leery of distressed sales and negotiate harder when considering one, sales of bank-owned homes continue to comprise about one in every three sales reported by Orlando REALTORS®. Short sales, meanwhile, comprised about 18% of all sales in late November, down from 24% a year ago.

Heckendorn-Telenda doesn’t think buyers will fully regain their confidence in bargain buys anytime soon. “It will work itself out between now and June, at the latest,” he said. “Between now and then, there will be a big push for short sale approvals.”

(c) 2010, The Orlando Sentinel (Fla.).

Distributed by McClatchy-Tribune Information Services.