Also, the market is so hot here it is difficult to see why an owner in trouble would not simply sell to discharge their debts. 

All of the terms in quotes are defined in your policy.Most think there is a flood exclusion on the policy, that is incorrect, it is a water damage exclusion, it just has an exception that if the water damage is cause by pipes that accidentally discharge, we will cover that water damage as long as the premise is occupied and either heat maintained or pipes winterized.  

What is plaguing me is that I see that the property is still occupied and the registry of deeds most recent listing is "Discharged" and instead of a mortgage listed or deed it says MERS.

There is no discharge date since it was dismissed.

As far as the BK13 goes, you will be able to borrower once your BK plan is discharged in 2 or 3 years from that date.  

Borrower Discharged from BK-7 in 2014 in NJ.  

The situation to me seems to be that the bank discharged the debt in bankruptcy court, didn't foreclose on him, and allowed him to keep the property. 

Minimum of 2 years from Chapter 7 or 13 bankruptcy discharge Minimum of 3 years from Preforeclosure, short sale, deed in lieu, foreclosure from discharge date or release date.Down Payment Requirements The borrower is required to make a minimum down payment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price.

Minimum of 2 years from Chapter 7 or 13 bankruptcy discharge Minimum of 3 years from Preforeclosure, short sale, deed in lieu, foreclosure from discharge date or release date.Down Payment Requirements The borrower is required to make a minimum down payment into the transaction of at least 3.5% of the lesser of the appraised value of the property or the sales price.

It's only if the loan gets cancelled, forgiven or discharged that you may have to report it as taxable income (though there are exceptions).