What part of their decision to give folks some money back doesn’t sit well with you? 

Here's some quick info that might help clarify how rental income is taxed: Real Estate 101: How Rental Properties Are TaxedIt probably also wouldn't hurt to sit down with your tax professional and have him/her give you some expert advice specific to your unique tax situation.

It will sit on his credit report until he settles the amount with the bank. 

MERS is a registration system, not a mortgage holder or anything else you elude to.Brock and Scott don't "service" loans that i recall so, if they have it or are getting it, they are working with the creditor to finish the foreclosure or start one.

Every decision has to be run by a group of people sitting in an office somewhere.

Maybe need to have a sit down with the buyer/seller/closing agent and get some explanations.

And the sad fact is that Baltimore City would rather have the property sit vacant than negotiate or waive the outstanding amount due.As has been said here and elsewhere in Bigger Pockets, there are investors who know how to make money in the D-class rental areas.

I recall my wife and I read it together after we put the baby to sleep each night and bookmarked pages as we moved on to each step.https://www.biggerpockets.com/store/managing-rental-properties-ebook

Tenant does not recall when they first noticed it. 

As if they are setup correctly the value is better than for homes just sitting in a park.