Selling a House You Still Owe Money On
Most people sell a house they still owe money on, and most have only a rough idea of the mechanics. The mortgage does not transfer and it does not https://juliusvcnz186.opalvector.com/posts/what-happens-to-your-mortgage-when-you-sell simply vanish. It gets paid off out of the proceeds at closing, and the order in which that happens explains several things that otherwise look strange.
At closing the title company requests a payoff statement from your lender. That figure is not your remaining principal. It is principal plus interest accrued to the payoff date, plus any escrow shortfall, recording fees and in some cases a small statement fee. It also carries a good-through date, because interest keeps running. If closing slips past that date, the payoff changes and a new statement is needed. That is why a delayed closing can quietly alter your net.
The payoff is then made from the sale proceeds before anything reaches you. So are property taxes owed to date, any second lien or home equity line, judgment liens, contractor's liens and unpaid HOA assessments. Whatever remains after all of it is your equity, and it is the last thing paid, not the first.
That ordering is why sellers with multiple liens are sometimes surprised at the closing table. A second mortgage you had stopped thinking about, or an old lien you believed was released but never was, comes out of your side. Liens are a matter of public record and a title search will find them. Better that you find them first.
Your escrow account is settled separately. After payoff, the lender refunds the remaining escrow balance, typically within a few weeks and by cheque to your last known address — so make sure they have your new one. Sellers routinely forget this and leave money uncollected.
Two situations need more care. If you owe more than the house will sell for, you are in a short sale, which requires lender approval and is a slower, more conditional process than an ordinary sale. And if you are behind on payments while trying to sell, the payoff has to happen before any foreclosure sale date, which turns a price negotiation into a calendar problem.
Texas homeowners with a home equity loan should also note that these are constitutionally regulated here and carry their own rules. If you have one, tell the title company early rather than discovering a complication in the final week.
Before you list, do two things: request a current payoff statement from your servicer, and ask a title company to run a preliminary search for liens. Those two documents tell you what you will actually walk away with, which is the only number that matters.