Texas Tax Sale: Lender strategy

[Robert Steele]

A friend asked me about a SFH being auctioned on the court house steps in a Texas county. At the conclusion of the sale I understand that the mortgage is no longer attached to the title. It becomes an unsecured loan (by the way the owner has no other real estate assets to get a judgement against). If the property is at say 65% LTV and we are talking a half million property what does the lender do prior to the auction - which is only a couple of weeks away?

Do they just let it go? If they do and the amount is for more than the taxes doesn't that money go to the owner?

Do they pay up the taxes and foreclose?

Do they go to the auction and bid? How much do they bid up to? It's not like they can do a full credit bid as they didn't win the judgement - the county taxing entity did.

All the tax sales that I have seen don't have mortgages because the lender would never let the process go this far and risk losing their security.

[Roy Oliphant]

@Robert Steele

While I agree the statute does not specifically give the mortgagee a redemption right, it is well established in case law (all the way to the US Supreme Court).  Generally, courts have interpreted the tax foreclosure statutes with a finger on the scales on the side of the previous owner and not the investor.  So long as the investor gets the statutory return (In Texas that is a 25% annual penalty rate) courts will try to find a way to return the property to those previously involved.  Maybe owners vote and banks contribute while investors just enrich themselves.