Question -- Even if the loans are still in the seller's name and I'm just writing checks to the bank each month that would still be be liable for UDFI tax?  

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To have your activity qualify as material participation, you must meet one of the following tests:-Work more than 500 hours in the activity (a married couple can count the involvement of both spouses to meet this test)-Do substantially all the work in the activity-Work more than 100 hours in the activity, and no one else worked more than the taxpayer (including non-owners or employees)-The activity is a significant participation activity and your total time in all significant participation activities exceeds 500 hours-You materially participated in the activity in any five of the prior ten years-You materially participated in a personal service activity for any three prior years-Based on all facts and circumstances, you participate for more than 100 hours in the activity on a regular, continuous or substantial basis during the yearPractically speaking, this means you’re doing the work on your rental properties rather than hiring a property manager.

But in the case you have already funded the 401k and you are benefitting from either defered tax in the case of 'regular' 401k or you benefit from no taxes on the income and legal dispersement of the Roth portion of your 401k.   

The referee and I signed the paperwork, I gave the auctioneer my bank check at the conclusion of the auction on a Friday around 11:30 am.

Make sure to follow their inspection list, the inspector checked everything on that list, testing every single plug in my property, turn on every appliance, hot water.. very thorough. 

I spend 2-300k a year at HD and get 2 checks of 2 and $3000 as a rebate.

We visited place, checked out a few properties, came back, made an offer, negotiated and finally property is under contract! 

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Thanks for clarifying its not a foreclosure sale but instead, an REO sale (Which i suspected), which is for all intents and purposes, a regular real estate transaction between a buyer and a seller, which has rules and regulations for each transaction.So, as a banker that sells REO, i would ask myself what it is you are hiding.