Almost every house I buy still has a loan on it. People sometimes call me nervous, as if owing money on the house means they need the bank’s permission to sell. In a normal sale you don’t. The loan gets paid off out of the sale money at settlement, the lender releases its lien, and whatever is left goes to you.
Where it gets more complicated is when there is more than one loan, when the payments are behind, or when the house is worth less than what you owe. I’ll walk through each of those in order, in plain terms, the way I would explain it at a kitchen table.
What actually happens to the loan at settlement
In Maryland the settlement is usually handled by a title company or a settlement attorney. Once there is a signed contract, they order a payoff statement from your servicer. That statement shows the exact amount needed to close the loan out on a specific date, including principal, interest through that date, and any fees.
On settlement day, the title company wires the payoff to your servicer from the buyer’s funds. The lender then records a release so the mortgage no longer clouds the title. You never hand the buyer your loan, and the buyer never takes it over. They are buying the house, and your loan is retired with part of the price.
Federal rules back you up on the payoff statement. Under Regulation Z, a servicer has to send an accurate payoff statement within a reasonable time, and no later than seven business days after a written request (12 CFR 1026.36). In practice the title company asks, but you can request one yourself early so you know where you stand.
Your balance is not your payoff
The number on your monthly statement is the principal balance. The payoff is almost always higher, because interest on most mortgages is paid in arrears and keeps running daily until the funds land. There can also be a recording or release fee, and on some older loans a prepayment charge, though those are less common on ordinary home loans than they used to be.
So when you are estimating what you will walk away with, start from a payoff quote, not the balance. Then subtract:
- Any second mortgage or home equity line.
- Your share of Maryland transfer and recordation taxes under the contract.
- Commission, if you list with an agent.
- Unpaid property taxes, water bills, or HOA dues that title will collect.
- Any judgment liens recorded against you.
What is left after those is your real number. I go deeper on the tax side in Maryland transfer and recordation taxes explained.
Second loans and HELOCs
A home equity line of credit has to be paid off and closed, not just paid down. If the line stays open, the lender can keep the lien in place. Title companies typically ask the HELOC lender for a payoff and a freeze or closure letter, and they may ask you to sign a request to close the account. Stop drawing on the line once you are under contract so the payoff does not move.
The escrow money you get back
If your servicer collects for taxes and insurance, there is usually money sitting in that escrow account when the loan is paid off. Under RESPA rules, the servicer must refund the escrow balance within 30 days of payoff (12 CFR 1024.34). That check comes to you directly after closing, separate from your sale proceeds. Don’t cancel your homeowners insurance until the deed records, but do call the carrier afterward about any unused premium.
When you are behind on payments
Being late does not stop a sale, but it changes the math and the clock. The payoff will include past due interest, late charges, and sometimes foreclosure fees or legal costs if the file has gone that far.
Three things I tell people in this spot:
- Call your servicer and ask about loss mitigation options and the reinstatement and payoff figures. Write down who you talked to and when.
- Talk to a HUD-approved housing counselor, which is free, or call Maryland HOPE at 1-877-462-7555. They can help you understand repayment plans, modifications, and other options.
- Because Maryland has the Protection of Homeowners in Foreclosure Act, which regulates people who offer foreclosure rescue help, it is smart to have an attorney look at anything you are asked to sign.
Selling can be one of the options on the table, through a listing or a cash sale, if there is equity. My stop foreclosure page lays out the full range so you can compare.
If you owe more than the house will sell for
This is the hard case. If the sale price minus costs won’t cover the loan, a regular sale cannot close unless you bring cash to settlement or the lender agrees to accept less. That second path is a short sale. The lender reviews your hardship, financials, and an offer, then decides whether to approve a payoff below what is owed.
Short sales can work, but they take patience. The lender controls the timeline, and approval is never certain. Ask in writing whether the lender will waive any remaining balance, because a short sale approval does not always forgive the difference. A real estate attorney or tax professional can tell you how a waived balance may affect you. There is a fuller comparison in my article on short sale versus a cash sale.
How I handle a loan when I buy
When I make an offer on a house with a mortgage, the title company orders the payoff, and we look at the numbers together before anyone commits. If the payoff and costs leave the owner with too little, I would rather say so on day one than have someone find out at the closing table. Sometimes listing makes more sense, and I will tell you that too. My as-is page covers how my process works when the house needs repairs.
Can I sell my Maryland house before the mortgage is paid off?
Yes. The title company or settlement attorney pays the loan off from the sale proceeds at closing, and the lender releases the lien. You do not need to pay the mortgage down first.
Why is my payoff higher than my statement balance?
Interest keeps accruing daily until the payoff arrives, and the payoff can include fees. The statement balance only shows principal. Always plan from a written payoff quote for your expected closing date.
Does the buyer take over my mortgage?
Not in a standard sale. The buyer purchases the house and your loan is paid off and closed. Arrangements where a buyer leaves your loan in place carry real risks and deserve review by an attorney before you agree to anything.
What happens to my escrow account when I sell?
Your servicer refunds the remaining escrow balance after the loan is paid off. Federal rules require that refund within 30 days of payoff, and it usually arrives as a separate check.
What if I owe more than the house is worth?
You can bring money to closing, ask the lender to approve a short sale, or look at other options with a HUD-approved counselor or Maryland HOPE. An attorney can explain whether any leftover balance could still be owed. Handling a mortgage still owed on a Parkville or Carney house? See how I buy houses in Parkville.
Talk through your situation
Send me your rough payoff and the address and I will help you see what a sale would actually leave you with. Call or text (410) 498-7473.