Seller Payoff: Clearing the Mortgage When Buying a Home

A mortgaged property cannot be transferred until the lien is released by the lender. Never buy a property under seizure. Transactions involving mortgaged homes—especially those with active loans—are more complex.
There are two ways to clear the mortgage:
1. The seller uses their own funds to pay off the loan early. If they lack the money, they can borrow from a guarantee company to redeem the property, which incurs guarantee fees and short-term redemption interest.
2. The buyer pays off the mortgage on the seller’s behalf (common). The key issue is ensuring the seller actually uses the funds to repay the loan. The buyer has two options:
The first is to trust the seller completely and hand over the money directly. If you let the seller use your down payment to clear the mortgage, what risks do you face? If the seller refuses to cooperate, you’ll have to pay again to complete the transfer—potentially multiple times.

The second option is to not give the money to the seller. Instead, have the seller authorize the buyer or the agent to make the loan repayment and release the lien directly. (This is the correct approach—ideally, authorize yourself so you can handle it personally. It’s more hassle but far safer.)