No that is not quite right. The tax lien or deed holder Does not owe the mortgage – it has been wiped out via tax lien foreclosure or tax deed sale. The previous owner of the property still owes the bank. The bank could go after the previous owner if they chose.

My point was that the tax sale releases the property as collateral from the mortgage loan. However the borrower (the previous property owner) theoretically still owes the money, just the collateral is gone.

Please keep in mind that I am familiar with the laws in MD however if you are talking tax deeds you are talking about a different state that may handle things differently. What I say will apply generally and in most states but you need to be familiar with the rules in the particular jurisdiction that you are buying in.

I don’t know the legalities of something like that, perhaps it could be considered a fraudulent conveyance. However I doubt that is the case, because the mortgage holder has the right to redeem to protect their interest. If the mortgage holder chooses not to redeem and protect their own interest I don’t see where they would have a right to complain.

However you must understand a tax sale wipes out any claim a mortgage holder has against the property but it does not necessarily remove personal responsibility for the debt. When you get a “mortgage” there is normally two documents; a note which you are personally responsible for and a mortgage or deed of trust which makes the property collateral for the loan. Just because the collateral is gone doesn’t mean the money isn’t still owed.

This actually came up recently. I got court decree giving me a tax sale property. I offered to sell it back to the previous owner saying that the mortgage was wiped out. The lender had loans on two other properties so he didn’t think it would be a good idea.

So I am not sure it is practical, but I really do like your creative thinking. I wtote a post about something similar here Why would you foreclose on yourself?