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In Foreclosure Limbo

A Florida couple is caught in a tangle of paperwork as their mortgage makes the rounds of lenders, databases, and debt-service agencies

Ernie and Teri Hassell are currently in a place millions of Americans call home: mortgage hell.

In 1997 the couple used their solid credit rating to buy a house in St. Petersburg, Fla., for approximately $200,000. After Teri became sick with a gland disorder, the couple refinanced twice—once in 2003 and again in 2007—taking on additional debt to pay for her treatment. In 2008, Ernie Hassell, 62, lost his full-time job as a risk-management consultant, and the couple fell behind on mortgage payments. As a result, they tried to sell their home, on which they then owed $537,000. The best offer they got was for $259,000. The deal fell apart, and their lender tried to foreclose.

By that time the Hassells' mortgage was already making the rounds. Their most recent lender, American Brokers Conduit, transferred custody of the loan to Mortgage Electronic Registration Systems, a digital database owned by huge lenders such as Bank of America (BAC). When the Hassells defaulted in 2008, MERS kicked the debt to American Home Mortgage Servicing, a company that specializes in handling subprime mortgages. AHMS filed a foreclosure suit against the Hassells—admitting in court papers that the couple's promissory note had been "lost, stolen, or destroyed."

AHMS now says it has rediscovered the document. A company spokeswoman blames the mishap on AHMS's own financial woes: The firm's parent filed for bankruptcy in 2007. Yet Matthew Weidner, the Hassells' lawyer, is still fighting the claim. "This is a microcosm of the financial crisis," he says. Meanwhile, the Hassells' debt is again on the move. In November, AHMS passed the debt to Residential Credit Solutions, a Texas operation that buys busted home loans. For now, the Hassells aren't budging. "We own this home," Ernie says. "Even if they say we don't."

Leonard is a reporter for Bloomberg Businessweek in New York.

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