They may not want to do the deal when they find out.If you want to offer a nominal amount the judgment holders might release their lien interests on the property for XX proceeds but reserve the right to pursue the remaining balance at a later date.This is different from releasing and settling to consider the judgment SATISFIED and paid in full.

I'm in negotiation with a seller and after I tell her around what my offer will be, she mentions she still has a small mortgage on the property and if she sells too low, then the capital gains tax may wipe out her remaining profit.I looking for the best way to purchase this property to minimize her tax and still get a good deal on my end. 

Well, the reason I posted the question was because we have talked about this, but she can't refi on her own, and she says "she'll find a way", to what I reply "and if you can't do it soon, why not just sell", and she just won't sell.I was kinda hoping a judge could determine that makes no sense for me to remain on the mortgage and order to sell the house.I guess I should take this question to the next level, an attorney :)

Whilst these towns are not particularly landlord friendly, they are also markets where tenants are happy to remain tenants, and this perspective has been predominant for decades.  

If you get into some funkier type transaction like a contract for deed/land contract,etc. then title remains in the sellers name until fully paid off.  

So far, things remain smooth.

Here is the letter I sent to my tenants on increasing rent after I spoke with them:Notice of Rent IncreaseJune 4, 2015To: <TENANT>This is to inform you that effective August 1, 2015 the rent for the unit you now occupy at 592 SW <PROPERTY> will be increased to $660.00, payable on the 5th day of each month.All other terms of our month-to-month rental agreement continue to remain in effect.We strive to provide quality housing at an affordable price.

The transfer from one spouse or ex spouse to another is not taxable under the section 1041 exchange.As long as the property was the primary residence of one of them then there is no gain on the sale up to 500k of gain of they remain married through the end of the year.

I had already considered option C or just paying the arrears for her but the loan would still remain hers.

It remains to be seen if they can actually raise the money for us, but I am pretty confident things will go okay.