Selling a house that still has a mortgage

The usual path: payoff at closing

When you sell, the closing agent requests a payoff statement from your mortgage servicer. The payoff amount is not the same as the balance on your monthly statement. It includes interest through the payoff date and can include fees, and it is good only through a stated date.

At closing, the payoff is sent directly to your servicer from the sale proceeds, the lender releases its lien, and the buyer receives clear title. You receive what is left after the payoff, other liens, and the costs you agreed to pay. If you have a second mortgage or home equity line, each one is paid off the same way.

If there is plenty of equity, this is straightforward whether you list with an agent or sell directly to a cash buyer. Ask for an estimated net sheet early so you know roughly what will reach you.

When you owe more than the house will bring

If the sale price will not cover the loan plus closing costs, you have a shortfall. You can bring money to closing to cover it, or you can ask your lender to accept less than the full payoff. That second option is a short sale.

A short sale requires the lender's written approval. Expect to submit financial documents, a hardship explanation, and the proposed contract, and expect the review to take time. The lender may approve, counter, or decline, and it may or may not waive the remaining balance. Get any waiver of the deficiency in writing.

Forgiven mortgage debt can have tax consequences. Canceled debt is often treated as income unless an exclusion applies, and the rules on exclusions have changed over the years. Read IRS Publication 4681 and talk with a tax professional before agreeing to a short sale. If you are behind on payments, a HUD-approved housing counselor can explain options at no cost.

Loan assumptions

An assumption means the buyer formally takes over your existing mortgage with the lender's approval. Some government-backed loans, such as many FHA and VA loans, can be assumable if the buyer qualifies. Most conventional loans are not.

When the lender approves an assumption and releases you, the buyer becomes responsible for the loan. If the lender does not release you, you may remain liable even though you no longer own the house. Ask the servicer directly whether your loan is assumable and whether a release of liability is available. The buyer usually still has to pay you the difference between the loan balance and the price, in cash or another form.

Subject-to: keeping your loan in place

In a subject-to arrangement, you deed the house to a buyer, but your mortgage stays in your name. The buyer agrees, privately, to make the payments. The lender has not approved the buyer and has not released you.

That means your credit and your liability stay tied to a house you no longer own. If the buyer misses payments, the late payments and any foreclosure are reported on your credit. Most mortgages have a due-on-sale clause, and federal law generally allows lenders to enforce those clauses, with exceptions that mostly involve family transfers, death, divorce, and certain trusts. A sale to an unrelated buyer is generally not one of them, so the lender may be able to demand full repayment.

Subject-to is sometimes presented as a way to avoid foreclosure. It can also be the setup for a scam. Treat it as a high-risk structure that requires your own attorney's review, not a routine closing.

When a clean cash sale is simpler

If you have equity and want the loan gone, a cash sale with the mortgage paid off at closing ends your obligation. Your servicer is paid, the lien is released, and you are not depending on someone else's future payments.

Prominent Cash Offer's primary service is buying houses for cash, nationwide and in any condition, with no fees or commissions and closing costs paid on cash purchases. You choose the closing date and get a written offer with no obligation. Flexible arrangements are evaluated case by case, and not every property, seller, or state qualifies.

If your house is in good shape and you have time, a traditional listing may produce a higher price. If you owe more than the house is worth, a cash sale does not erase the shortfall; you would still need to cover it or work out a short sale with your lender.

A short checklist

Before you sign anything that involves your existing mortgage, gather the facts.

• Request a current payoff statement from your servicer
• List every lien: second mortgages, HELOCs, tax liens, judgments
• Estimate your net after costs for each option you are considering
• Ask your servicer whether the loan is assumable
• Have an attorney review any deal that leaves your loan in place
• Talk to a HUD-approved housing counselor if you are behind