What Happens to the Mortgage in a Tax Sale?

Learn What Happens to the Mortgage in a Tax Sale

I’m Ted Thomas. Today, we’re going to discuss what happens to the mortgage in a tax sale. I’m also going to talk a little bit about insider tips on how you can make some money in tax liens and also tax deeds.

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What Happens to the Mortgage in a Tax Sale?

Taxing Entities

What happens to the mortgage in a tax lien state? Let me give you a few facts.

There are over 3,000 counties in the United States and another 1,400 municipalities. They are all taxing entities and either sell tax lien certificates or tax deeds.

All the records are kept at the local county records called the public records. Every county has them.

What Happens to the Mortgage in a Tax Sale?

Property Taxes

Years ago, wealthy people owned all the property, and they let people farm on it. People paid them in chickens, eggs and cattle.

Now, we don’t use that system. The system we use now is property taxes. So, everyone who owns land or a property has to pay property taxes.

What Happens to the Mortgage in a Tax Sale?
Unpaid Property Taxes

What is a tax sale property? If you don’t pay your property tax, here’s what’s going to happen. They’re going to come out and seize the property, evict you, and sell the property at a tax delinquent property auction.

The county government has power to remove you from that property if you don’t pay property taxes, and that’s where tax liens and tax defaulted property come from.

The legislature loves real estate because people can’t leave without paying. They’re always going to have the real estate. So, let’s discuss that a little bit.

What Happens to the Mortgage in a Tax Sale?

Mortgages, Deeds of Trust, and Contracts to Sale

What’s going to happen to the mortgage on that real estate? Most people borrow about 80% of the money they use to buy a property. They put 20% down and get the rest of the money from a bank.

They call that a “mortgage” in the East, and in the middle part of the country, they call it a “contract to sale.” In the western part of the country, it’s called a “deed of trust.” They’re all basically a promissory note.

Everybody’s got either a mortgage, deed of trust or a contract of sale on their property. So, what’s going to happen to that mortgage?

What Happens to the Mortgage in a Tax Sale?

The Mortgage Is Tied to the Signatory, Not the Property

In the event that people don’t pay property taxes, the county is going to take action. They’re going to say, “You’re in default. If you don’t pay, we’re going to confiscate the property.”

If there’s a mortgage on the property, they’re going to wipe the mortgage off the property.

That doesn’t mean the mortgage is destroyed. It’s still in place, and whoever signed that mortgage, the signatory, still has a mortgage. They still owe.

However, the bank no longer has the security of the real estate because the county is going to take the real estate.

what is an installment sale in real estate no mortgage

What Happens to the Mortgage in a Tax Sale?
Most Encumbrances Are Removed From the Property

When the county takes the real estate, they also take the majority of the loans or liens, also called “encumbrances,” off the property.

Every property starting out probably has some kind of lien or encumbrance on it, but if it goes through this process of default from the county government, the county is going to wipe the mortgage out.

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What Happens to the Mortgage in a Tax Sale?

Lien Priority

Could you have multiple liens on there? Could you have mortgage 1, mortgage 2, and mortgage 3? Yes, but the property tax lien is always the first lien.

Let me say that again because it’s very important that you understand. The tax lien is always the first lien. So, who has the power? The local county government.

It wouldn’t matter if it were the IRS, a local bank that lent money on a mortgage, or a dentist that you didn’t pay, and he had a lawsuit against your judgment. The county has the power to wipe out all of those encumbrances on the property.

What Happens to the Mortgage in a Tax Sale?

Junior Liens and Senior Liens

What does that mean to you? If you’re buying a tax lien or tax deed property, no worries because the county will have already wiped out those liens.

It’s wiped clean off the slate so that when you buy a tax lien certificate, you now have a property that has no liens on it. Even the IRS is a very junior lien.

What Happens to the Mortgage in a Tax Sale?
The Tax Lien Is the Senior Lien

What’s the senior lien? It’s always the tax lien certificate because it was the first one that was ever filed.

Everything is done with date and time. The property tax lien is always the senior lien no matter the state or county, and every other lien, judgment or encumbrance is junior.

This is why when you buy a tax lien certificate, you get a property without a mortgage on it.

What Happens to the Mortgage in a Tax Sale?


What happens to the mortgage in a tax sale is that the mortgage is wiped out. The mortgage is tied to the signatory, not to the property, and it’s the senior lien.

When you purchase a tax lien or tax deed property, you get it mortgage-free!

If you’d like to know more about tax delinquent property investing, Ted Thomas provides full support and complete training with home study courses, Q&A webinars, live tutorials, workshops, web classes, and personal coaching with certified coaches.

Ted Thomas classYou can learn how to reap the huge rewards from tax lien and tax defaulted property investing! Get started today by taking advantage of Ted’s Free Master Class! Act now, it costs you nothing and will give you a big head start!

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The Ted Thomas Difference:
  • Ted is recognized as America’s Tax Lien Certificate & Tax Deed Authority and has been helping people with investing in tat defaulted properties for over 30 years.
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