Can You Sell a House With a Mortgage in New Jersey?

Yes. Many New Jersey houses are sold with a mortgage still on them, and you don’t have to pay the loan off before you sell. At closing, the settlement agent uses the sale money to pay your lender the amount its written payoff statement shows as due on the payoff date, along with any other loans or liens and the costs of the sale, and you receive what’s left. The questions that matter are how much the payoff really is, whether a home equity line needs extra handling, and whether the price will cover everything you owe.

How the payoff works at closing

1. The title search. After you sign a contract, the buyer’s title company searches the public record. It looks for every mortgage recorded against the house, including an old one that was paid off but never cleared from the record.
2. Payoff statements. With your authorization, your attorney or the settlement agent asks each lender for a written payoff statement good through the expected closing date.
3. Closing. The settlement agent sends each lender its payoff from the sale money and shows every payoff on the settlement statement you sign.
4. After closing. The lender marks the loan paid, and the mortgage is then cancelled of record. New Jersey law sets out the steps for that (N.J.S.A. 46:18-11.2), and the closing and title professionals typically follow up until the record is cleared.

You generally don’t need your lender’s permission to sell when the sale will pay the loan in full. Permission becomes the issue when the price won’t cover what you owe, or when someone proposes taking over the loan (both below).

The payoff statement

Federal rules require the company servicing a loan secured by your home to send an accurate payoff statement, showing the total needed to pay the loan in full as of a specified date, within a reasonable time and no later than seven business days after it receives a written request from you or someone acting for you. The rule allows longer, though still a reasonable time, when the loan is in bankruptcy or foreclosure, is a reverse mortgage or shared appreciation mortgage, or after a natural disaster or similar circumstances (12 CFR 1026.36(c)(3)). The same rule covers home equity lines.

Expect the payoff to be higher than the balance on your monthly statement. Interest usually runs up to the day the lender receives the payoff, and the statement can include fees, late charges or amounts the lender advanced. Many payoff statements also give a daily interest figure, so the settlement agent can adjust if the closing date moves.

Escrow, and your last payments

If your lender collects for taxes and insurance, there’s probably money left in your escrow account. Federal rules generally require the servicer to refund it within 20 business days after the loan is paid in full (12 CFR 1024.34(b)). Until closing, keep making your payments as usual; if a payment falls due close to the closing date, ask the settlement agent whether to make it.

If you have a home equity line or a second mortgage

A home equity loan or second mortgage is paid off the same way as the first mortgage, with its own payoff statement. A home equity line of credit (HELOC) needs one extra step. Because a line can be drawn on again until it’s closed, the title company will usually want the line frozen and closed along with the payoff, so no new money can be borrowed against the house after the payoff figure is set. Lenders typically ask for your signed request to close the account, and many payoff statements for credit lines include the form.

• Once you’ve asked for a payoff, don’t draw on the line, write line checks or leave automatic payments running against it.
• If the title search turns up a line or loan you thought was closed years ago, find any paperwork showing it was paid. The settlement agent may need the lender to confirm it before the buyer’s title company will treat it as cleared.

What you walk away with

Your proceeds are, roughly, the sale price minus every payoff minus the costs of selling: commission if you list, the realty transfer fee, attorney and other closing charges, and anything you agree to give the buyer. It’s worth asking your servicer for a payoff figure, or at least checking your latest statement, before you set a price or compare offers. Equity estimates made without one are guesses.

If you’re behind on payments

You can generally still sell. The payoff will include the missed payments, late charges and, if a foreclosure has started, the lender’s fees and costs, so ask for a current figure early. If a foreclosure has been filed, timing becomes the main question, because the sale has to close in time. Our foreclosure guide explains the stages and the free help available, and it’s worth talking to a New Jersey attorney or a HUD-approved housing counselor as soon as you can.

If you owe more than the house will sell for

The buyer’s title company won’t close unless every mortgage is either paid in full or released by its lender. If the price won’t cover what you owe plus the costs of selling, the realistic paths are:

• bringing the difference to closing from savings or other funds;
• asking the lender to approve a sale for less than you owe, a short sale, which has its own questions about the leftover balance, taxes and credit;
• staying and asking the servicer about a loan modification or repayment plan, or waiting until the numbers change;
• if debts go well beyond the house, talking to a bankruptcy attorney (our bankruptcy page lists questions to ask).

Before deciding you’re underwater, make sure the value is real: an online estimate is only a starting point.

Can a buyer just take over your mortgage?

Usually not without the lender’s involvement. Most mortgages contain a “due-on-sale” clause, which lets the lender demand the full balance if the house is sold or transferred without its written consent, and federal law generally allows lenders to enforce it (12 U.S.C. 1701j-3). Be careful with any proposal to take the house “subject to” your existing loan: the deed changes hands, but the loan stays in the original borrower’s name, and missed payments would hurt that borrower’s credit. Have a New Jersey attorney review any arrangement like that before you sign.

Other liens are paid at closing the same way as a mortgage.

Questions to ask

For your servicer:

• What is the payoff, good through what date, and what is the daily interest after that?
• Is there a prepayment charge or any fee in the payoff?
• For a home equity line: what do you need from me to freeze and close the line at closing?
• How much is in my escrow account, and how will it be refunded?

For your attorney or settlement agent:

• Did the title search find any mortgage or lien I don’t recognize?
• What will I net after all payoffs and costs, and when will I receive it?
• Who confirms that the mortgage is discharged after closing?

Who can help

• Your loan servicer: payoff statements, escrow balances and closing a home equity line. The Consumer Financial Protection Bureau explains the rules servicers must follow.
• Your real estate attorney or the settlement agent: ordering payoffs, clearing title and checking the settlement statement.
• A HUD-approved housing counselor: free or low-cost help if you’re behind on payments. Find one through HUD.

If you’d like a realistic picture of what the house might bring listed versus sold directly, and help comparing those options with the payoff figures you have, you can reach Ryan at 973-699-3804. Our How It Works page explains how a direct offer is put together.