subject: Do I Repay Any Unpaid Mortgage On The Property That I Bought From A Tax Deed Auction? [print this page] Do I repay any unpaid mortgage on the property that I bought from tax deed auction? The answer to this often-asked question is generally no (though you'll want to check with the county you're purchasing property in to be absolutely sure). The property you buy at tax sale will be free and clear once the redemption period is up, and you apply for the deed. If there is no redemption period, then the title will be cleared at or around the time of the tax deed auction.
This does not necessarily apply to the tax deed overages, however. Tax deed overages are the amount bid over what was owed in taxes, that is generally held for the owner to collect. If there is a big mortgage on a nice property and not much tax owed, the mortgage company can usually apply for the excess ahead of the owner.
That being said, by the time a property makes it all the way to tax sale, it generally doesn't have a mortgage. That is, properties sold at tax sale are usually free and clear. This is because mortgage companies will come in and bail out the taxes, to prevent the situation above from occurring in the first place. Then they can foreclose and do as they please with the property.
So the list of properties sold at tax sale are generally free and clear. What this means for investors is that that list is a golden opportunity to pick up free and clear properties by contacting those owners during the redemption period and buying - often for pennies on the dollar. This is a truly amazing time to pick up properties for next to nothing.
By waiting until this point in the process, you've a) let the tax sale do your research for you (you know which properties are free and clear, for the most part, and the owners you contact will tell you if there is somehow a mortgage left); b) waited until the owners are in a position where they really must sell, or lose everything; and c) cleared out most of the competition. Most investors invest at the tax sale, or try to get the property before the tax sale - even though it's totally legal in most places for the owner to sell their property after tax deed auction.
If you want to avoid the hassle of attending the tax deed auction and bidding against other bidders, this is the way to go.
