Q: I hold a mortgage on a (maybe) homesteaded property . If the property is lost to a tax sale would the balance of the mo
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Would the balance of the mortgage lost to a tax sale be paid to the holder of the mortgage ?
A: If you were to lose the house in a tax sale, the entity that is foreclosing and causing the sale of the house to go through would have to satisfy the mortgage before taking any of the proceeds themselves. However, there are such things as super liens, which would involve property taxes and HOA liens. If the state or your HOA foreclose on you and they are considered a super lien, they would take the proceeds of the sale first to satisfy their debt and then the remaining would go to pay of the mortgage with the final amount, if any, going to the homeowner. If you don't meet the personal residence exemption for tax purposes, you may also end up owing income taxes on the amount of that you receive or is used to pay off the mortgage. If there isn't enough proceeds to go around to pay the mortgage to zero, you will also have forgiveness of debt income that would be taxable to you. You can avoid the taxes on the cancellation of debt if you can show that the house is your personal residence for the exemption or if you can show that you were insolvent.
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