This is not a legal question, though the questioner would be well advised to talk with an attorney regarding the different types of policies being offered by a broker since brokers are agents of the insurance companies whose products he/she is licensed to sell. I own two LTD policies, and I researched the underwriters and terms/conditions vigorously because there can be some wide variations.
Lenders collect payments on Notes, not Deeds. Mortgages are documents executed by owners of property to secure their obligation to repay a loan. Lenders generally cannot collect money from someone who did not execute a Note. Lenders generally cannot foreclose on properties owned by a person who who did not execute a Mortgage. I am not sure if this information sheds any light on your situation, but feel free to post more information.
Your question seems to be whether the foreclosing lender will issue a 1099 in your name, thereby obligating you to pay income tax on account of forgiven indebtedness? The answer is *probably* not, but there are some precautions you can take, with the advice of counsel, to push that likelihood toward zero.
If the sale proceeds are sufficient to pay off and satisfy the mortgage that is in foreclosure, and the seller can otherwise can convey clear title, then the buyer should be careful about cancelling the sale because the "fraud" may not have caused any actual harm. Perhaps there are more facts as to why the non-disclosure has posed a problem for the buyer, but if the buyer cancels without just cause, the seller may attempt to retain the deposit money under the Agreement of Sale.
The question needs more detail about what type of taxes are sought to be minimized or avoided. My assumption was transfer taxes, but the questioner seems to allude to something in addition to transfer taxes. If the goal is simply to avoid state and local transfer tax, then the questioner should consult with a real estate attorney concerning the various exemptions which may apply to conveyances.
You should probably retain legal counsel to write a letter to the contractor. The letter should enlighten the contractor concerning the Pennsylvania Home Improvement Contractors Act and the Unfair Trade Practices & Consumer Protection Law. You should also get a double-sided image of any checks you wrote to him so you know who or what entity holds title to his bank account(s). If a letter fails to elicit a response along with your refund, I am afraid that filing a lawsuit may be your only...
The answer to your question is that no one can stop you and the co-owner from signing and recording a deed divesting you of your ownership interest. Although, as astutely noted already, there is probably a due on sale clause in the Mortgage; however, if the loan is kept current, the bank would probably not seek to enforce it. Unfortunately, if the bank will not release you from the debt, that will absolutely affect your ability to secure other financing. The only way to make that happen...
You should consult with an experienced real estate attorney to find out if the lien is actually valid and, if so, when it might expire. You should also consider whether there is a malpractice case to be asserted on behalf of your father's estate against the attorney who apparently failed to advise him to purchase a title policy and/or failed to conduct a proper search of the title.
If you're asking how to effectuate the actual conveyance at the present time, then attorney Berger is absolutely correct--you need to have a deed prepared, executed and then recorded. If, instead, you're asking how to form an agreement for a conveyance at a later date, you probably need to consult with an attorney who can guide through the process of preparing and executing a binding and enforceable agreement for the sale/transfer of an interest in the real estate.