The irony of you accusing others to lack critical reading skills.Lot of people who have no idea how deeds to properties work, or lack critical reading skills. The owner died in the big upset, so it was an abandoned home, which the merchant guild picked up and then resold for a highly inflated amount, to Lily and the Duke; a scheme that they had been carrying out repeatedly with other houses, and Lily's house wasn't meant to be in the group that went to the Duke due to the chances of something like this happening.
1. The owner hasn't been confirmed to be dead, they were stated to have disappeared (granted, most likely dead).
2. The merchant didn't "pick it up". It is explicitly stated that he falsified the documents. You can't just declare abandoned property your own and sell it. As I said and you quoted, if the owner died it would fall to their heirs.